Y = (C + I + G + NX) <-Income Identity
C = 300*0.8YD<-Consumption
I = 200-1500r <-investment
NX = 100-0.04Y-500r <-net exports
M^d = (0.5Y-2000r) <-Money Demand
G = 1200
t (tax rate) = 0.2
Money Supply (M^s) = $500
P = $1
Note that C is given as C = 300 + 0.8YD â 1,000r. This consumption will be used to find the following:
a. What is the IS Curve under these assumptions?
b.What are the values of income (Y) and the interest rate (r) when the IS-LM model is in equilibrium?
Y = (C + I + G + NX) <-Income Identity
C = 300*0.8YD<-Consumption
I = 200-1500r <-investment
NX = 100-0.04Y-500r <-net exports
M^d = (0.5Y-2000r) <-Money Demand
G = 1200
t (tax rate) = 0.2
Money Supply (M^s) = $500
P = $1
Note that C is given as C = 300 + 0.8YD â 1,000r. This consumption will be used to find the following:
a. What is the IS Curve under these assumptions?
b.What are the values of income (Y) and the interest rate (r) when the IS-LM model is in equilibrium?
Related textbook solutions
Related questions
What is the equation of the IS curve in the economy below?
Consumption: C = 310 + 0.6(Y - T) - 100r
Investment: I = 150 - 350r
Net Exports: NX = - 0.1Y - 50r + 0.1YFor + 1000rFor
Government purchases: G = 365
Taxes: T = 275
Foreign real income: YFor = 1200
Foreign real interest rate: rFor = 0.01
Nominal money supply: M = 4800
Real money demand: L = 1000 + 0.4Y - 400r
| a. r = 1.58 - 0.003Y |
| b. r = 1.58 - 0.001Y |
| c. r = 1.60 - 0.003Y |
| d. r = 1.62 - 0.002Y |
What are the short-run equilibrium values of Y and r when P = 3?
Consumption: C = 310 + 0.6(Y - T) - 100r
Investment: I = 150 - 350r
Net Exports: NX = - 0.1Y - 50r + 0.1YFor + 1000rFor
Government purchases: G = 365
Taxes: T = 275
Foreign real income: Y For = 1200
Foreign real interest rate: rFor = 0.01
Nominal money supply: M = 4800
Real money demand: L = 1000 + 0.4Y - 400r
| a. | Y = 1570 and r = 0.025 |
| b. | Y = 1555 and r = 0.03 |
| c. | Y = 1540 and r = 0.04 |
| d. | Y = 1525 and r = 0.05 |
