Summarize the structure of the economy

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Assignment:

Assume the following equations summarize the structure of the economy.

C = Ca + 0.85(Y-T);

Ca = 470-15r;

T = 200 + 0.2Y;

Ip = 1,700 -60r;

G = 1,700;

NX = 500 -0.08Y

and Md = 0.25Y -25r;

Ms = 2,125

a) Derive the equation for the IS curve.

b) Derive the equation of the LM curve.

c) Compute the equilibrium interest rate and output.

d) Suppose the government increases its spending by 160 (1,700 => 1860). Compute the new equilibrium interest rate and output. What is the amount of income that has been crowded out by this expansionary fiscal policy?

e) Compute the new equilibrium interest rate and output if G equals 1,700, but the money supply increases by 100.

Reference no: EM133294895

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