In: Economics
1. Assume that the consumption function is given by C = 200 + 0.5(Y – T) and the investment function is I = 1,000 – 200r, where r is measured in percent, G equals 300, and T equals 200.
a. What is the numerical formula for the IS curve?
b. What is the slope of the IS curve? (Hint: The slope of the IS curve is the coefficient of Y when the IS curve is written expressing r as a function of Y.)
c. If G increases to 600, what is a new IS curve?
d. Graphically illustrate IS curve from part a and new IS curve from part c.