Which money demand depends on after-tax income

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Reference no: EM13207032

Consider an IS-LM model in which money demand depends on after-tax income, so the LM equation is M / P = L(r,Y ?T) . The IS equation is standard one, Y = C(Y T) + I(r) +G. Assuming a fixed price level in the short run, find the signs of dY* / dG and dY * / dT .

you might need some of the following plausible parameter values.
Interest elasticity of investment = 0.8
Interest elasticity of money demand = 0.1
Income elasticity of money demand = 1.0
Investment-GNP ratio = 0.15
Marginal Propensity to consume out of income = 0.5

Reference no: EM13207032

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