IS curve shows goods market equilibrium and is obtained by equating Y to AD.
LM curve shows money market equilibrium and is shown by equating money supply to money demand.
Fiscal budget Surplus is government revenue minus government expenditure.
You are given the following information about an economy(interest rate is measured in percentage points). A...
I need help with this. 1. In an economy which has a national income identity as the following; Y= C+ I + G + NX where C = 400 + 0.6 Yd,; 1 = 1000-4600 r, G-1240 T-200 +0.25 Y; NX-400-0.05Y-8 00 e ( ofcourse, Yd=Y-T) Where e- foreign currency/ domestic currency, and initially set at e 1.25+2.5R The money demand function is Md- 0.75 Y-7500 r, and money supply is set by the Central Bank at 450. All calculation...
(25pts) 2. Suppose the government wants to reduce its budget deficit. Using the long-run model of the economy developed in Chapter 3, illustrate graphically the impact of the alternative fiscal policy measures indicated in parts (a) and (b) below. Be sure to label: (i) the axes, (ii) the curves, (iii) the initial equilibrium values; (iv) the direction curves shift; and (v) the final equilibrium values. (15) a) Suppose the government decides to reduce the government's budget deficit by reducing government...
Question #4: IS-LM Model: Change in Fiscal Policy (a) Suppose Congress had announced that they were going to increase government spending to G = 400. Assume that (M/P)Sreturns to 1600. Now the set of equations are the following: C = 200 + 0.25YDI = 150 + 0.25Y –1000i T = 200 G = 400(M/P)S= 1600(M/P)d= 2Y –8000i Calculate the new level of equilibrium interest rate (i) and equilibrium output (Y).(b) Calculate the new levels of consumption (C) and investment (I)...
We assume that the relationships in the text below describe an economy. It is a closed economy with a given (fixed) price-level and with a variable interest rate (the interest rate is given with a whole value ex. 10% is 10 and not 0,1). C = 425 + 0,4 YD T = 100 G = 140 I = 100 + 0,1 Y – 50r MD = L(r;Y) = Y – 100r MS M/P = 200 YD = (Y-T) Find the...
Assume the Chilean economy can be described as follows: C=200+0.25Yd l=150+0.25Y-1000r G=250 T=200 (M/P)d= L(r, Y) = 2Y- 8000r Ms=1840 P=1 a) Derive the equation for the LM curve. ( 1 .5 mk) b) Determine the slope af the LM curve. (0.5 mark) c) Derive the equation for the IS curve (I.S mk) d) Determine the slope ofthe IS curve. (0.5 mk) c) Compute the quilibrium values of income (Y) and interest rate (R)? (2 marks) [) Calculate the value...
A5-10. Suppose the following aggregate expenditure model describes an economy: C = 100 + (5/6)Yd T = (1/5)Y 1 = 200 G = 400 X = 300 IM = (1/3)Y where C is consumption, Yd is disposable income, T is taxes, Y is national income, I is investment, G is government spending, X is exports, and IM is imports. (a) Derive a numerical expression for aggregate expenditure (AE) as a function of Y. Calculate the equilibrium level of national income....
Question 3: Multiplier Model (20 Points] Suppose the components of a closed economy can be described by the following set of equations: Y=C+I+G C= 1200 +0.8 (Y-T) I = 750 G = 900 T=950 (a) Is the government currently running a balanced budget, a budget deficit or a budget surplus? Explain. [3 Points (b) Calculate the equilibrium income. [6 Points) (c) Graphically illustrate, using the Keynesian Cross Diagram, the effect of a decrease in government spending on equilibrium output. [5...
I need help with the last part of this questions with the new curve etc A= C + + G + X - M C = 0.75Y = 1200 - 50 G = 100 X = 300 M= 200 Y = A L = 0.25Y - 25i (M/P) = 250 L = (M/P) Derive the IS equation from the above model. Derive the LM equation from the above model. Derive the equilibrium levels of Income Y and Interest Rate i....
Q1140 points] Briefly, but not unsatisfactorily, answer the following questions. a) Using the Keynesian cross model where the goods market equilibrium is determined and analyzed, graphically derive the IS curve, and explain each step. Explain what the equilibrium in the goods market implies for the IS curve, i.e., why is the IS curve downward sloping. Also, explain what causes shifts in the IS curve. b) First, based on the analysis of the financial market equilibrium, graphically derive the LM curve....
Part 2: Questions from the Instructor 1. The following equations describe the macro-economy: Consumption function: C = 50 + 0.5 (Y-T) Government spending: G = 100 Real Money supply: M/P 100 Real Money demand: Md/P-2Y-20000/ Taxes: T 0.2Y Investment: 200- 10000i Notice that taxes are no longer fixed: they are proportional to the amount of income. a) Derive the IS and LM curves. b) Calculate the equilibrium output and interest rate. c) At the equilibrium, is the government having a...