The following macroeconomic equations relate to country in Europe. National income identity Y =...

The following macroeconomic equations relate to country in Europe.

National income identity Y = C + I + G + X - M

Consumption C = 120.18 + 0.5Yd

Disposable income Yd = Y - T

Tax function T = 20 + 0.6Y

Investment I = 150.30 – 100r

Government Expenditures G = 102.50

Exports X = 108

Imports M = 50.65 + 0.05Y

Speculative demand for money M_sp = 124.43 – 200r

Transactive demand for money M_t = 0.38Y

Money Supply M_s = 300.76

Where Y is national income and r is interest rate.

Write out the IS equation (goods market equilibrium) in the form aY+br=M, where a and b are constants.
Write out the LM equation (money market equilibrium) in the form dY+gr, where d and g are constants.
Express the IS and LM equations in the matrix form AX = b, and hence solve for the equilibrium values of national income (Y) and interest rates (r) using either the Cramer’s rule or inversion approach.

Expert Solution

Rahul Sunny answered 2 years ago

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