C=300+0.50(Y-T) Investment function is I=100-20t Government purchases and taxes are both 150 Money demand function (M/P)d=Y-150r Money supply M=1000 Price level P=2 a. Derive and graph an equation for the aggregate demand curve. b. Describe what happens to this aggregate demand curve if fiscal or monetary policy changes in the case of a rise in government changes c. Describe what happens to this aggregate demand curve if fiscal or monetary policy changes in the case of a rise money supply
C=300+0.50(Y-T)
Investment function is I=100-20t
Government purchases and taxes are both 150
Money demand function (M/P)d=Y-150r
Money supply M=1000
Price level P=2
a. Derive and graph an equation for the aggregate demand curve. b. Describe what happens to this aggregate demand curve if fiscal or
c. Describe what happens to this aggregate demand curve if fiscal or monetary policy changes in the case of a rise money supply
C=300+0.50(Y-T)
Investment function is I=100-20r
Government purchases and taxes are both 150
Money demand function (M/P)d=Y-150r
Money supply M=1000
Price level P=2
Aggregate demand (AD) = C+I+G
AD =300+0.50(Y-150)+100-20r+150
AD = 475 +0.5Y - 20r---------------1
We know,
Money demand = Price level * Money supply
Y-150r = 2000
r = Y/150 - 4/3
Putting this in equation 1:
AD = 475 +0.5Y - 20( Y/150 - 4/3)
AD = 448.33 + 0.367 Y
Thus, the equation for the aggregate demand curve is derived.
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