Calculate the effect of an increase in the money supply

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Reference no: EM13833504

The consumption function is C = 270 + 0.63Y - 1000R

Y= C + I + G +x

M = (0.1583Y-1000R)P

I = 1000-2000R

X = 525 - 0.1Y-500R

Price level = 1

Govt. Spending = 1200

Money Supply = 900

a. Derive an algebraic expression for the IS curve for this model and plot it to scale. Please show all of your work when deriving the IS curve.

b. Derive the aggregate demand curve and plot it to scale. Show all of your work.

c. Calculate the effect of an increase in government spending on GDP. Is the effect larger or smaller than in the case where consumption does not depend on the interest rate?

d. Calculate the effect of an increase in the money supply on GDP.

Reference no: EM13833504

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