Reference no: EM132550646

Calculative Question

We have an IS-LM Model given below;

C = 175 + 0.25YD
I = 150 + 0.25Y - 1000i
G = 275
T = 200
(M / P) d = Y - 4000i
(M / P) s = 800
a) Derive the IS and LM equations
b) Calculate the equilibrium level of income (Y) and the interest rate (i).

Question 4 Calculative Question

Economy X would like to use a certain combination of capital and labor with the demand variables to determine the quantity output. Based on the below information

Aggregate Demand Aggregate Supply Equilibrium

YAD = C + I + G YAS = A Kα L1-α YR = 0.5YAD + 0.5YAS

C = 300 + βYD A = (1 + g) Ao

YD = YR + TR - tYR K = 32.86

TR = 40 L = 154.3

G = 130 g = 7.5%

I = 100 Ao = 100

t = 0.1 α = 0.25

Where C is private consumption, YD is disposable income; TR, G and I are transfer payments, government spending and total investment, respectively. A in the index of technology and K and L are capital and labour inputs. A0 is the initial levels of A and L, both assumed to be 100, while g is the growth rates. The MPC is 0.60 All figures are in $m except for t, g, α and MPC values which are decimals.

Calculate the equilibrium level of income (YR) for Economy X.