Determine the is and lm curves

Reference no: EM133339913

Assume a small economy closed to foreign trade, whose behavioral functions can be described by the following:

C = 150 + 0,85 Yd
I = 180 - 950 i
G = 600
T = 400
Yd = Y - T
M/P = 0,30 Y - 900 i
M/P = 1000

It is requested:

a. Determine the IS and LM curves, indicating the point at which both the market for goods and services and the market for financial assets are balanced.

b. Assume that the government decides to implement an expansionary fiscal policy, which takes government spending from $600 to $900. How does your answer change in statement A?

c. Suppose the Central Bank resolves to conduct an expansionary monetary policy, which takes the money supply from $1000 to $1500. How does your answer change in A?

d. Suppose now that both policies b) and c) are adopted simultaneously and determine the new equilibrium point. Graph the result.

No.02

2. Consider an economy described by the following set of equations:

C = 1 + 0,8(1 - t)Y
I = 2 - 0,4i
G = 1
t = 0,2
Ms = 6
Md = 0,75Y - 1,5i

It is requested:

a. Obtain the equilibrium values of Y and i.

b. Suppose that the autonomous share of investment falls by 10%. By what percentage must government spending increase to restore the previous equilibrium value?

Reference no: EM133339913

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