Reference no: EM131086090
Suppose that the following equations describe an economy, where C, I, G, T, and Y are measured in billions of dollars, and r is measured in percent (i.e. r=10 means r=10%). C = 170 + 0.6(Y-T) T = 200 I = 100 – 4r G = 350 Money demand L = 0.75Y – 6r Money supply Ms = 735
(a) Derive the equation for the IS curve
(b) Derive the equation for the LM curve.
(c) Express both IS and LM equations in terms of r. Plot and graph both and calculate their slopes.
(d) Calculate the equilibrium level of real output Y, the interest rate r, planned investment I, and consumption C.
(e) At the equilibrium level of output Y, calculate the value of government budget surplus/deficit.
(f) Suppose that G increases by 36 to 386. Derive the new IS and LM equations and plot these curves as in (c).
(g) Calculate the new equilibrium.
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