Consider an economy that may be represented by the following short-run IS-LM model described by equations (1) through (6): (1) C 200+ 0.8(Y-T) (2) T = 800 (3) G= 500 (4) 1 700 - 25 r (5) Y=C+I+G (6) M/P = 0.6Y - 60r where the nominal money supply is M-600 and the price level is P = 1. Suppose that the government increases its expenditures by 100 units, but the Bank of Canada would like to maintain the interest rate constant. Then, (approximately)
Consider an economy that may be represented by the following short-run IS-LM model described by equations (1) through (6): (1) C 200+ 0.8(Y-T) (2) T = 800 (3) G= 500 (4) 1 700 - 25 r (5) Y=C+I+G (6) M/P = 0.6Y - 60r where the nominal money supply is M-600 and the price level is P = 1. Suppose that the government increases its expenditures by 100 units, but the Bank of Canada would like to maintain the interest rate constant. Then, (approximately)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Consider an economy that may be represented by the following short-run IS-LM
model described by equations (1) through (6):
(1) C 200+ 0.8(Y-T)
(2) T = 800
(3) G = 500
(4) 1 700 - 25 r
(5) Y=C+I+G
(6) M/P = 0.6Y - 60r where the nominal money supply is M-600 and the price level
is P = 1. Suppose that the government increases its expenditures by 100 units, but
the Bank of Canada would like to maintain the interest rate constant. Then,
(approximately)
the money supply must decrease by 125.5 units and equilibrium output
increases by 200 units.
the money supply must decrease by 100 units and equilibrium output increases.
by 250 units.
the money supply must increase by 300 units and equilibrium output increases
by 500 units
the money supply must increase by 60 units and equilibrium output increases by
100 units.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5800fca0-3988-48c9-ad83-2c7c1e1d6012%2F0a3ff209-f1c9-48f6-ab3b-4a847ec8461e%2Fmccydqw_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider an economy that may be represented by the following short-run IS-LM
model described by equations (1) through (6):
(1) C 200+ 0.8(Y-T)
(2) T = 800
(3) G = 500
(4) 1 700 - 25 r
(5) Y=C+I+G
(6) M/P = 0.6Y - 60r where the nominal money supply is M-600 and the price level
is P = 1. Suppose that the government increases its expenditures by 100 units, but
the Bank of Canada would like to maintain the interest rate constant. Then,
(approximately)
the money supply must decrease by 125.5 units and equilibrium output
increases by 200 units.
the money supply must decrease by 100 units and equilibrium output increases.
by 250 units.
the money supply must increase by 300 units and equilibrium output increases
by 500 units
the money supply must increase by 60 units and equilibrium output increases by
100 units.
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