Determine the equation for the lm curve find the short-run

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Reference no: EM13389769

Let us consider a hypothetical economy that is described by the equations shown below:

C = 300 + 0.75 YD - 300 r

T = 100 + 0.20 Y

I = 200 - 200 r

L = 0.5 Y - 500 i

YD = Y - T

Where full-employment level of Income ?= 2500; Government Spending G = 600;

Nominal Money Supply M = 133,000; Expected Inflation is πe = 0.05; and the fixed Price Level P = 120.

a. Determine the equation for the IS Curve.

b. Determine the equation for the LM Curve.

c. Find the short-run equilibrium real interest rate and level of income.

d. Determine the equilibrium values for Consumption (C), Taxes (T), Investment (I) and nominal interest rate (i).

e. Determine the long-run equilibrium.

f. Using the IS and LM curves found above, find the equation for the Aggregate Demand (AD) curve. (Hint: Use the LM curve without specifying the value of Price Level, P)

Reference no: EM13389769

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