Suppose that the following IS-LM model represents the ATA economy.
Y = Cᵈ + Iᵈ + G
Cᵈ = 180 + 0.7 (Y - T)
Iᵈ = 100 - 18r - 0.1Y
T = 400
G = 400
M/P = L
L = 6Y - 120i
M = 5400
Assume expected inflation is zero and P = 1.
a.Find the equation for the IS curve.
b.Find the equation for the LM curve.
c.Find the equilibrium values for output and the interest rate.
d.At this equilibrium,what is the level of consumption and investment?
e.If government purchases (G)increases to $410,find the new equilibrium values for output and the interest rate.
f.What are the effects of the fiscal expansion above on consumption and investment?
Correct Answer:
Verified
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q63: Use the IS-LM model to determine the
Q87: For each of the following changes,what happens
Q90: Suppose the economy is initially in long-run
Q92: Suppose that the following IS-LM model represents
Q93: The LM curve is derived from
A)investment-saving market.
B)money
Q94: Suppose the economy is initially in long-run
Q96: When demand for money increases,interest rate rises.This
Q98: Oil prices have risen temporarily,due to political
Q99: For each of the following changes,which equilibrium
Q100: Using the IS-LM and AD curves,analyze the
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents