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 of the multiplier
( I mk)
B) Use the IS-LM model to PREDICT the short-run Impact on the INTEREST rate and output if the Bank of Jamaica pushes down interest rates down at same time that both consumption and investment fall duo to a financial crisis. Illustrate your answer graphically.
Bc sure to label: i. the axes; ii. the curves; iii.
the initial equilibrium; and iv. tile direction the
curves shift. Explain your answer in words.
(3 marks)
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)...
The following equations describe an economy. Y=C+I+G C=50+0.75*(Y-T) I=150-10r (M/P)d=Y-50r G=250 T=200 M=3,000 P=4 Identify each of the variables, and briefly explain their meaning. From the above list, use the relevant set of equations to derive the IS curve. Graph the IS curve on an appropriately labeled graph. From the above list, sue the relevant set of equations to derive the LM curve. Graph the LM curve on the same graph you used in part b). What are the equilibrium...
Consider the Mundel-Fleming small open economy model: Y=C(Y-T)+1(1) + G Y = F(K,L) (M/P) L(r+z® Y) Goods Money C = 50+0.8(Y- T) M 3000 I = 200-20r r*=5 NX = 200-508 P = 3 G=T= 150 L(Y, r) Y - 30r 1- find the IS* equation (hint : y as a function of e) 2- find the LM* equation (hint, also relates y and maybe e) 3-draw the IS-LM curve I y 4- find the equilibrium interest rate (trick question!)...
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