onsider an economy with the following information: Y = C + I + G, C=180+0.7( Y-T), I= 100-18i + 0.1 Y, T =400, G=400, P=1, M=5400, L=6Y -120i, M/P=L Derive the IS equation. Derive the LM equation. Solve the IS-LM to obtain the equilibrium output and the interest rate
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Consider an economy with the following information: Y = C + I + G, C=180+0.7( Y-T), I= 100-18i + 0.1 Y, T =400, G=400, P=1, M=5400, L=6Y -120i, M/P=L Derive the IS equation. Derive the LM equation. Solve the IS-LM to obtain the equilibrium output and the interest rate
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- Suppose the current level of output and the interest rate are such that the economy is operating on neither the IS nor LM curve. Which of the following is true for this economy? A) Production does not equal demand. B) The money supply does not equal money demand. C) The quantity supplied of bonds does not equal the quantity demanded of bonds. D) Financial markets are not in equilibrium. E) all of the aboveThe consumption function is given by: C = 200+0.75 (Y-T). The investment function is I = 200-25r. G =100 T=100 Suppose instead that money supply is raised from 1,000 to 1,200. How much does the LM curve shift? What are the new equilibrium interest rate and level of income?Suppose the parameters of the IS curve are a_bar = 0, b_bar = 1/2, r_bar = 2%, and R = 3%. What’s the value of real interest rate when the economy is outputting at its long-run level.
- In a small closed economy, its aggregate demand and output are given as the equations below, Y = C + I + G; national output or GDP. C = 100 + 0.5(Y-T); consumption, marginal propensity to consume MPC = 0.5. I = 150 – 10*r; investment is a negative function of real interest rate (r as %). (M/P)d = Y – 20*r; real money demand which is adjusted by price level (inflation). G = 200; as government spending. T = 200; as tax. M = 2,400; as money supply. P = 4; the price level. (1) With the equations above, try to derive the IS curve. Tip: recall IS curve represent the relation between national output (Y) and real interest rate (r) in goods market. To derive IS curve, you need to put all components of Y together and find its connection with r. (2) Use the same equations, now try to derive the LM curve. Tip: recall LM curve represent the relation between national output (Y) and real interest rate (r) in money market. So to derive LM curve, you need to consider money supply and demand.…The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government cuts spending, holding other factors constant? options: point A point B point C point DSuppose we start with a general equilibrium, and the economy experience an improvement in payment technology. Which of the following statements correctly describes the difference between the initial general equilibrium and the final general equilibrium 1. the real interest rate is greater under the final equilibrium 2. the real interest rate is smaller under the final equilibrium 3. the real interst range does not change under the final equilibrium 4. None of the above
- Consider the following IS–LM model: C = 100 + .25YD I = 50 + .25Y - 1000i G = 150 T = 100 (M/P) d = 2Y - 8000i (M/P)s = 1000 a. Derive the IS relation b. Derive the LM relation c. Solve for equilibrium real output. d. Solve for the equilibrium interest rate e. Solve for the equilibrium values of C and I f. now suppose that the money supply increases to M/P = 1010. Solve for T, f. suppose that government spending increases to G = 155 What is the value of money supply? g. From what we studied, which policy, expansionary fiscal policy or expansionary monetary policy will undoubtedly increase investment.Assume the following model of a closed economy: Y = C + I + G C = 120 + .5(Y – T) I = 100 – 10r G = 75 T = 50 (M/P)d = Y – 30r Ms = 700 P = 2 Derive the equation for the IS curve, showing Y as a function of r alone. Derive the equation for the LM curve, showing Y as a function of r alone. Graph both the IS and the LM curves. What are the equilibrium level of income and equilibrium interest rate? (Y = 584, r = 7.8)Refer to Figure 11.1. All of the following events can cause a movement from Point E to Point A EXCEPT Group of answer choices an increase in real output and income. a decrease in the interest rate. an increase in the nominal aggregate output. an increase in the aggregate price level.
- Q11 Assume that investment does NOT depend on the interest rate. A reduction in the money supply will cause which of the following for this economy? Select one: a. no change in output. b. no change in the interest rate. c. a reduction in investment. d. an increase in investment.. In the IS-LM model, what is the effect of an increase in government purchases? Draw an IS-LM diagram to illustrate. In this question, it is not necessary to include the FE line. a) What is the effect on output and the real interest rate? b) What is the effect on investment spending? c) If the LM curve had been horizontal, explain how your answers to a and b would have been different.If the statement is false or uncertain, please correct the statement to make it true. If the statement is true, please explain your answer briefly. In a closed economy, adjustment in the nominal interest rate causes the simultaneous equilibrium in the product market and in the financial market.
