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In: Economics

Suppose that a hypothetical economy is characterized by the following equations: C = 200 + 0.75(Y-T)...

Suppose that a hypothetical economy is characterized by the following equations:

C = 200 + 0.75(Y-T)

I = 200 – 25r

G = 100

T = 100

MS = 1,000

P = 2

(M/P)d = Y – 100r

  1. Use the above information to obtain an expression for the IS curve (write Y as a function of the interest rate).
    1. mathematical procedure

  1. Explanation
  1. Assuming that P is fixed at 2, obtain an expression for the LM curve (again, write Y as a function of r).
    1. mathematical procedure
  1. explanation

  1. Find the equilibrium level of Y and r.
    1. mathematical Procedure

  1. explanation

  1. Suppose that the government increases G to 150. By how much the IS curve will shift? What are the new levels of Y and r?
    1. mathematical procedure

  1. explanation
  1. Suppose that after the increase in G, the Belize Central Bank raises the money supply to 1,200. What are the new equilibrium values of r and Y?
    1. Mathematical Procedure

  1. explanation

Solutions

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Rahul Sunny answered 6 months ago
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