Question

In: Economics

1. Indicate the effect of each of the following policies on the variables: Y, C, S,...

1. Indicate the effect of each of the following policies on the variables: Y, C, S, r, I, Ms, and Md

  1. The government reduces the personal income tax rates.
  2. Firms become more pessimistic about future sales.
  3. People believe that interest rates are going to fall in the future so they transfer their assets from cash to bonds.

2. The Lupland economy is represented below:

C=100+0.8Y

S=-100+-0.2Y

I= 120-5i

Ms= 120

Md= 0.2Y-5i

Find equilibrium level of income and interest rate, show the results on IS-LM graph.

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