Reference no: EM132405645
Assume that an economy is characterized by the following equations: C = 200 + 0.75(Y - T) ,I = 200 - 25r, T = 100, G = 100, (M^d)/P = L(r,Y) = Y - 100r, P = 2, Ms = 1000
a. Find the algebraic expression of the IS curve and show that the slope of the IS curve is negative.
b. Find the algebraic expression of the LM curve and show that the slope of the LM curve is positive.
c. Find the equilibrium interest rate r and the equilibrium level of income Y.
d. Suppose that government purchases are raised from 100 to 150. How much does the IS curve shift? What are the new equilibrium interest rate and level of income?
e. Suppose government purchases are at the original level, 100, and suppose the money supply is raised from 1000 to 1200. How much does the LM curve shift? What are the new equilibrium interest rate and level of income?
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Find the algebraic expression of the is curve
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