ECON 2H03 Lecture Notes - Lecture 3: Liquidity Trap, Demand Shock, Aggregate Demand
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Consider a closed macro model where y = c + i + g. [3 marks] (the is equation) y = 2500 1. 5t + 2. 5g 50r (the lm equation) y = 2m/p + 50r (the ad equation) y = 1250 0. 75t + 1. 25g + m/p. Assume that g is 1000, t is 1000, m is 1500 and p is 1. Assume that m is 1600, while g, t and p remain unchanged. Consider the following small open economy macro model where y = c + i + g + nx. Find the following: [6 marks] (the lm* equation) y = 2m/p + 100r (the is* equation) Y = 2500 3t + 4g 100r 400e. Further assume that g is120, t is 100 and m is 600. Find the following equilibrium values in a flexible exchange rate system: Exchange rate (e) = 1. 2 (s i) = 105 - 125. [you must write value of s and i]
