In this example find the equation for the lm schedule

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Reference no: EM13393202

Firstly, Consider a simple Keynesian income-spending model of an economy described by the following equations

C = 210 + 0.75Yd

= 300

= 425

= 120

= 100

M = 0.15Y

= 250

A. Calculate the equilibrium level of income.

B. Sketch this equilibrium position using a two-dimensional graph.

C. Suppose the government reduces public expenditure on goods and services by 25. Estimate the change in the equilibrium level of income. What is the new equilibrium level of income?

Now, Consider an IS/LM model of an economy with the following equations:

C = 300 + 0.6Yd

I = 100 - 5i

= 200

= 100

T = 0.2Y

L = 0.5Y - 30i

/ = 500

(a) Using the above data, derive the equation for the IS schedule.

(b) In this example, what is the equation for the LM schedule?

(d) What is the value of the monetary policy multiplier with respect to income and interest rates? If the money supply is increased by 100, what are the new market-clearing income and interest rate levels?

Reference no: EM13393202

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