Consider the economy of Ethiopia.a. The consumption function is given byC = 200 + 0.75(Y – T).The investment function isI = 200 – 25r.%3DGovernment purchases and taxes are both 100. For this economy, graph the IS curve for rranging from 0 to 8.b. Assume the money demand function in Ethiopia is(M/P)d = Y – 100r. The money supply M is 1,000 and the price level P is 2. For this economy, graph thed. Suppose that government purchases are raised from 100 to 150.How much does the ISc. Find the equilibrium interest rate r and the equilibrium level of income Y.LM curve for rranging from 0 to 8.curve shift? What are the new equilibrium interest rate and level of income?e. Suppose instead that the money supply is raised from 1,000 to 1,200. How much doesthe LM curve shift? What are the new equilibrium interest rate and level of income?f. With the initial values for monetary and fiscal policy, suppose that the price level risesfrom 2 to 4.What happens? What are the new equilibrium interest rate and level ofincome?Derive and graph an equation for the aggregate demand curve. What happens to thisRgregate demand curve if fiscal or monetary policy changes, as in parts (d) and (e)?

Given : C=200+0.75(Y-T) I=200-25r (M/P)d= Y-100r

Consider the economy of Ethiopia. a. The consumption function is given by C = 200 + 0.75(Y – T). The investment function is I = 200 – 25r. Government purchases and taxes are both 100. For this economy, graph the IS curve for r ranging from 0 to 8. b. Assume the money demand function in Ethiopia is (M(P)d = Y - 100r.

Consider the economy of Ethiopia. a. The consumption function is given by C = 200 + 0.75(Y – T). The investment function is I = 200 – 25r. Government purchases and taxes are both 100. For this economy, graph the IS curve for r ranging from 0 to 8. b. Assume the money demand function in Ethiopia is (M(P)d = Y - 100r.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter13: Monetary Policy: Conventional And Unconventional

Section: Chapter Questions

Problem 8TY

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