Consider an economy with the following features: Consumption, C - 100 + 0.9 Y, Income tax, Investment, 1 600-30i Government expenditure, G 300 Transaction demand money for M, 0.4Y Speculative demand for money, M, -- 5Ci Nominal money supply М 1040 Price level 2 (where Y,stands for disposable income, and i for rate of interest) Derive the IS and LM equations and fund out the equilibrium levels of income and rate of interest.

Consider an economy with the following features: Consumption, C - 100 + 0.9 Y, Income tax, Investment, 1 600-30i Government expenditure, G 300 Transaction demand money for M, 0.4Y Speculative demand for money, M, -- 5Ci Nominal money supply М 1040 Price level 2 (where Y,stands for disposable income, and i for rate of interest) Derive the IS and LM equations and fund out the equilibrium levels of income and rate of interest.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consumption function C=250+0.6(Y-T) Investment I=100-20r Money demand function (M/P)=Y-20r a. Government purchases and taxes are both 100. In the accompanying diagram, graph the IS curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations. b. The money supply M is 2,875 and the price level P is 5. In the accompanying diagram, graph the LM curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations. c. Find the equilibrium interest rate, r, and the equilibrium level of income Y.
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