Question

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 runs off at the second digit of decimal. Figure out the equations and derive the IS and LM curves for the economy IS: a) LM: Then, calculate the equilibrium level of GDP and the interest rate GDP b) The government increases its expenditures by 300 to 1540, show the shift of the diagram and figure out the new equilibrium level of GDP and interest rate based on the new IS curve and initial LM curve? New IS curve: GDP = c) What is the budget multiplier in this economy? If the Congress reject the proposal of increasing government spending and cuts the tax rate by 20% ( T-400-02 Y ), then figure out the new is cure and calculate the equilibrium level of GDP and interest rate. d) New IS curve ( after tax cut)- GDP ng the tax rate by 20%, the Central Bank e) In addition to fiscal policy ofcutti increases the money supply 10% to 495, please show the shift of the diagram and figure out the new equilibrium level of GDP and interest rate under new LM curve and IS curve after tax cut from question d). New LM curve: GDP- f) What is the government budget deficit or surplus after tax cut and easy money policy? g) What is the exchange rate after tax cut and easy money policy?

Answer 1

Given doka に400+0.6(Y-1 ) LJhel e 1-1000-4600 wx4o o.oy-800e a. J900一4600飞一8oo y--oIY= 1.25十2.GV CamScanner

(7 Y= 61t oo - 80,666-66Y L : Money ser o be inte the Honey Sup 600十10,0005 Cs cned with CamScanner

r0 be calukoked 5800 30, 666-638 30, 68b.6 6 丫口0.1891 y 6400-80666.66 6400 20 666.6 (o. 189 6400-3708, 06 Cs Scanned with CamScanner

6400t[1940]一90666.66入 £ s: y = 25 15 CS Scanned with CamScanner 7040=30666-6691

30666-66 y- 76 40-20666-66 (0-2395) 895 6.. GDP. CS Scanned with CamScanner