Given the following economy: Y = C(Y - T) + I(r) + G C(Y - T)...

Given the following economy:

Y = C(Y - T) + I(r) + G

C(Y - T) = a + b(Y - T)

I(r) = c - dr

M/P = L(r,Y)

L(r,Y) = eY - fr

i. Solve for Y as a function of r, the exogenous variables G and T, and the model's parameters a, b, c, and d.

ii. Solve for r as a function of Y, M, P, and the parameters e and f.

iii. Derive the aggregate demand curve. This solves for Y as a function of P, the exogenous variables M, G, and T; and the model's parameters. This expression should not contain r.

Hint: For part iii. substitute result from ii. into result from i.

Solutions

Expert Solution

Rahul Sunny answered 1 week ago

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