Suppose the economy of Canada is governed by the following consumption function, investment function, and fixed values of government expenditure and taxes C =300 + 0.6(Y – T), I =700 – 80r, G =500, T =500. Further, suppose that the money demand function, money supply, and price level are given by (*)' =Y – 200r, М 3-3000, %3D P =2. (a) Compute the IS and LM curves, and plot these curves for interest rates ranging from 0% to 15%. Find the equilibrium levels of Y and r. 700. What are the new (b) Suppose that the government increases expenditures to G equilibrium values of Y and r. What is the government expenditure multiplier? (c) For the initial levels of government expenditure (G : demand curve. What is the level of aggregate demand when the price level is equal 500), compute the aggregate to 4?
Suppose the economy of Canada is governed by the following consumption function, investment function, and fixed values of government expenditure and taxes C =300 + 0.6(Y – T), I =700 – 80r, G =500, T =500. Further, suppose that the money demand function, money supply, and price level are given by (*)' =Y – 200r, М 3-3000, %3D P =2. (a) Compute the IS and LM curves, and plot these curves for interest rates ranging from 0% to 15%. Find the equilibrium levels of Y and r. 700. What are the new (b) Suppose that the government increases expenditures to G equilibrium values of Y and r. What is the government expenditure multiplier? (c) For the initial levels of government expenditure (G : demand curve. What is the level of aggregate demand when the price level is equal 500), compute the aggregate to 4?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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