Desired consumption is cd 100 08y - 500r

Desired consumption is cd 100 08y - 500r - 05g and

Reference no: EM13382666

Desired consumption is Cd = 100 + 0.8Y - 500r - 0.5G, and desired investment is Id = 10 - 500r. Real money demand is Md/P = Y - 2000i. Other variables are pe = 0.05, G = 200, = 1000, and M = 2100.

(a) Find the equilibrium values of the real interest rate, consumption, investment, and the price level.

(b) Suppose the money supply increases to 2800. Find the equilibrium values of the real interest rate, consumption, investment, and the price level. (Assume that the expected inflation rate is unchanged.)

Use the IS-LM model to determine the effects on the general equilibrium values of the real wage, employment, output, the real interest rate, consumption, investment, and the price level. For full credit you must draw the graph and explain in words.

Reference no: EM13382666

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