7) Suppose an economy is given by the following equations: C = 100+ 0.75Yd I = 125 - 5i G = 100 T = 100 (M/P) = 50 Y L(i) = 0.1Y - 2i Yn = 525 (Yn is the natural level of output) Using the above information, answer the following. (a) Derive the IS and LM curves. (b) Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom? What policy should the Government (administration) pursue? Explain your answer specifically explaining what information leads you to think the economy is in a boom or a recession.

7) Suppose an economy is given by the following equations: C = 100+ 0.75Yd I = 125 - 5i G = 100 T = 100 (M/P) = 50 Y L(i) = 0.1Y - 2i Yn = 525 (Yn is the natural level of output) Using the above information, answer the following. (a) Derive the IS and LM curves. (b) Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom? What policy should the Government (administration) pursue? Explain your answer specifically explaining what information leads you to think the economy is in a boom or a recession.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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