Suppose that the following equations describe an economy: [Currency unit=$] (18 p.)

Suppose that the following equations describe an economy: [Currency unit=$]

AD=C+I+G +NX; C=600+0.8 YD; TA=0.5Y; TR=0; I=900-90i; G=900; NX=0; M/P=400; L=0.2Y-50i

a) Find the equilibrium levels of output and the interest rate.

Expert Solution

The answer of the following question are as follows :

Ans.A) Y=600+0.8(Y-0.5,Y) +900- 90i + 900

0.6y= 2400-90i

Y=4000-150i(is equation)

400=0.2y-50i

50i=0.2y-400

i=0.004y -8(lm equation)

Putting lm into is equation

Y=4000- 150(0.004y-8)

Y=4000-0.6y+1200

Y=5200/1.6=3250

i=0.004*3250-8=5

Rahul Sunny answered 2 years ago

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