Essay
Suppose that the following IS-LM model represents the ATA economy.
Y = Cᵈ + Iᵈ + G
Cᵈ = 180 + 0.7 (Y - T)
Iᵈ = 100 - 18r - 0.1Y
T = 400
G = 400
M/P = L
L = 6Y - 120i
M = 5400
Assume expected inflation is zero and P = 1.
a.Find the equation for the IS curve.
b.Find the equation for the LM curve.
c.Find the equilibrium values for output and the interest rate.
d.At this equilibrium,what is the level of consumption and investment?
e.If government purchases (G)increases to $410,find the new equilibrium values for output and the interest rate.
f.What are the effects of the fiscal expansion above on consumption and investment?
Correct Answer:
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a.Y = 180 + 0.7(Y - 400)+ 100 - 18r + 0....View Answer
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