ZuoTi.Pro
Question

IS LM type question

The following equations describe the economy.

• C = 100+ 0.8 Y

• I = 200- 1000 i

• L = Y – 10000 i

Initially, government expenditure is $550, and taxes are $500. The real money supply equals

$900.

a. Derive the formulas for the IS curve and LM curve. (4pts)

b. What are the initial levels of GDP, the interest rate, consumption, and investment?

Owing to a drop in investor confidence, the autonomous component of investment drops

by 90. (2pts)

c. By how much do income, the interest rate, and investment drop? (3pts)

d. By how much should the money supply be changed in order to return GDP to its original

level? What will the new interest rate be? (3pts)

e. Draw three graphs to illustrate the equilibria in b, c, and d. (6pts)


macroeconomics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Request Professional Answer

Request Answer!

We need at least 9 more requests to produce the answer.

1 / 10 have requested this problem solution

The more requests, the faster the answer.

Request! (Login Required)

All students who have requested the answer will be notified once they are available.
Know the answer?
Add Answer to:
IS LM type question
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Similar Homework Help Questions

  • IS/LM: Use the same setup as #1, but now Investment spending is a function of the real interest r...

    IS/LM: Use the same setup as #1, but now Investment spending is a function of the real interest rate: I = 10000 – 50000r. Government purchase are now $1200b (makes for nicer numbers). Money demand in the economy is MD= (0.01Y – 800r)P + o. Assume the current money supply is $1400b, the price level/CPI is 100, and there are no money demand shocks to worry about (o = 0). a) Derive the IS curve and the LM curve for...

  • Just e) f) and g) if possible please Question 5: The IS-LM model Consider the following...

    Just e) f) and g) if possible please Question 5: The IS-LM model Consider the following IS-LM model: Consumption: C = 200 +0.25YD Investment: I=150 + 0.25Y - 10001 Government spending: G=250 Taxes: T=200 Money demand: L(i,Y)-2Y - 8000 Money supply: Ms /P=1600 (a) Derive the equation for the IS curve. (Hint: You want an equation with Y on the lefthand side and all else on the right) (b) Derive the equation for the LM curve. (Hint: It will be...

  • PLEASE ANSWER ALL THE POINTS AND WRITE CLEARLY AND JUSTIFY THANKS Consider the following algebraic version...

    PLEASE ANSWER ALL THE POINTS AND WRITE CLEARLY AND JUSTIFY THANKS Consider the following algebraic version of the IS-LM model C 200+0,5 YD (C is consumption, YD is disposable income); G (public spending) 100; T (taxes) 100 1. 350 4000i +0,1 Y (I is investment, i is interest rate, Y is real income). Real demand for money: md-0,5 Y-7500, real money supply: (MVP-mf-250; (i) Write the equations that represent the IS and LM relations. [3pl (ii Find the equilibrium values...

  • Consider the following IS-LM model, in which the central bank targets an interest rate of i...

    Consider the following IS-LM model, in which the central bank targets an interest rate of i C 11500.3YD 1 = 2000 + 0.3Y-8000i G 2000 T 1500 = 4Y-16,000i -= 0.02 c) Solve for value of the real money supply that the central bank must set to achieve its interest rate target, and the equilibrium level of output, by combining the IS and LM relations. Compute the values of equilibrium consumption, investment, and money demand. If the GDP deflator is...

  • 9. Assume that the money demand function is ( M P)d= 2,200 – 200r, where r...

    9. Assume that the money demand function is ( M P)d= 2,200 – 200r, where r is the interest rate in percent. The money supply M is 2,000, and the price level P is 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will: A) drop by 4 percent. B) drop by 2 percent. C) drop by 1 percent. D) remain unchanged. 10. The reason that the income...

  • Consider the following IS-LM model. Starting from an equilibrium at interest rate rz and income Y2,...

    Consider the following IS-LM model. Starting from an equilibrium at interest rate rz and income Y2, if there is an increase in government spending that shifts the IS curve to IS2, then in order to keep the interest rate constant: LM Interest rate, r LM LM 12 1'3 14 IS2 IS Y Y2 Y; YA Income, output, Y Select one: a. The Federal Reserve should increase the money supply O b. Cannot determine from the available information. c. The Federal...

  • 1. In an economy which has a national income identity as the following; Y= C+ I + G + NX where C ...

    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...

  • Question 4. Using your knowledge of IS-LM, solve the following: 8 12 1+r 1+r (a) If...

    Question 4. Using your knowledge of IS-LM, solve the following: 8 12 1+r 1+r (a) If the consumption function is given by C = 100 + 0.6(Y − T ), planned investment is given by 1000 − 100r, G is equal to 100, and T is equal to 100. Solve for the IS equation (hint:Y as a function of r). The economy is a closed economy. (b) If the money supply is equal to 2000 and real money demand, (M/P)d...

  • onsider the following IS-LM model with a banking system: Consumption: C = 7 + 0.6YD Investment:...

    onsider the following IS-LM model with a banking system: Consumption: C = 7 + 0.6YD Investment: I = 0.205Y − i Government expenditure: G = 10 Taxes: T = 10 Money demand: Md/P=Y/i Demand for reserves: Rd = 0.375Dd Demand for deposits: Dd = (1 − 0.2)Md Demand for currency: CUd = 0.2Md This says that consumers hold 20% (c = 0.2) of their money as currency and the required reserve ratio is 37.5% (θ = 0.375). Demand for central...

  • Derivation of the Aggregate Demand Curve Suppose the economy of Y is described by the following...

    Derivation of the Aggregate Demand Curve Suppose the economy of Y is described by the following equations: Consumption: C = 750 + 0.60 Yd where Ydrefers to disposable (post-tax) income. Taxes: T = 300 Government Expenditure: G = 30+0.2Y Investment: I = 400 -2000r Money Demand: L(r,Y) = Y – 10,000r Nominal Money Supply :Ms=$12000 Price Level P1=$3 Calculate the tax multiplier in Y Derive(sketch) the IS curve for Y. Derive(sketch) the LM curve for Y Solve for the equilibrium...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT