Solve c,d,e in full details Suppose the economy of Canada is governed by the following consumption function,investment function, and fixed values of government expenditure and taxesC =300 + 0.6(Y – T),I =700 – 80r,G =500,T =500.Further, suppose that the money demand function, money supply, and price level aregiven bydM().=Y – 200r,PМ —3000,Р —2.(a) Compute the IS and LM curves, and plot these curves for interest rates ranging from0% to 15%. Find the equilibrium levels of Y and r.(b) Suppose that the government increases expenditures to G = 700. What are the newequilibrium values of Y and r. What is the government expenditure multiplier?(c) For the initial levels of government expenditure (G = 500), compute the aggregatedemand curve. What is the level of aggregate demand when the price level is equalto 4?(d) Now consider the case where G increases to 700. What is the new level of aggregatedemand when holding the price level equals 4? (e) Suppose that investment is now more sensitive to movements in r.' What will hap-pen to the aggregate demand curve? Do you think this will make monetary andfiscal policy have larger impacts on aggregate demand for a given price level?

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Suppose the economy of Canada is governed by the following consumption function, nvestment 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 d M =Y – 200r, P М 3 3000,

Suppose the economy of Canada is governed by the following consumption function, nvestment 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 d M =Y – 200r, P М 3 3000,

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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