Solve for the overall equilibrium

Reference no: EM1370279

Demand: Z=C+I+G
Consumption: C=Co+C1(Y-T)
Investment: I=aY-bi

1). Derive the IS-curve
Now assume that the interest rate is determined by: M/P=d1Y-d2i, where P is the price level, Y is real GDP and M/P is the real money stock.

2)Derive the LM curve

Suppose the value of the parameters of the model are: c1=0.5, a=0.3,b=1,Co=225,T=G=400,d1=1,d2=10.M=5 and P=1

3) solve for the overall equilibrium in the goods and money market. (solve for Y and i)

4) What is the multiplier, and what effect does it have?

Reference no: EM1370279

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