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The consumption function of an economy is given by
c = 200+0.75(y-t)
And the investment function by
I = 200 = - 25r.
Government purchases G and taxes Τ are both 100. The money demand function is given by
(M/P)D = y - 100r
The money supply Μ is 1,000 and the price level P is 2.
(a) Calculate the equilibrium interest rate r and the equilibrium level of income Y.
(b) Suppose that government spending is raised to 150. What are the new equilibrium interest rate and the new equilibrium income? By how much does the IS curve shift?
(c) Suppose that instead the money supply is raised from 1,000 to 1,200. What are the new equilibrium interest rate and the new equilibrium income? By how much does the LM curve shift?
whwt is the difference between the fixed accelerator and the flexible accelerator theories of investment?
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The Government, Rest of the World and the financial markets total expenditure of government can be divided into two parts: transfers to private sector and consumption.
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list of macro-economics problems of indian economy
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