Suppose the IS curve is Y = 3945-100i and Y = 1500 + 250i is the LM curve. Using these compute: a) The equilibrium interest rate and output (i*and Y*). b) If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate. d) Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number. e) Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).

Suppose the IS curve is Y = 3945-100i and Y = 1500 + 250i is the LM curve. Using these compute: a) The equilibrium interest rate and output (iand Y). b) If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate. d) Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number. e) Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter12: Money And Banking

Section: Chapter Questions

Problem 13E

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C = 0.8(1 – t)Y I = 900 - 50i G = 2,000 M t = 0.25 L = 0.5Y 125i = 1,500 P Task 1. Derive the equations for the IS and LM curves. Tasks 2. Solve for the equilibrium income and equilibrium interest rate Tasks 3. Solve for the investment demand and money demand in equilibrium Task 4. Solve for the equilibrium income and interest rate when government spending decreases to 1,500.
1. Suppose the IS curve is Y = 3945-100i and Y = 1500 + 250i is the LM curve. Using these compute: a) The equilibrium interest rate and output (i*and Y*). b) If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate. d) Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (b) above. Suppose di/dMs = -0.15. e) Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).
1. Suppose the IS curve is Y = 3945-100i and Y = 1500 + 250i is the LM curve. Using these compute: a) The equilibrium interest rate and output (i*and Y*). b) If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate. c) Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number. d) Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).
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Suppose that an economy has a constant nominal money supply, a constant level of real output Y = 1500, and a constant real interest rate r = 0.05, and it’s expected rate of inflation is 2%, i.e, πe = .02. Suppose that the income elasticity of money demand is ηY = 0.5 and the interest elasticity of demand ηi = –0.2. (a) Suppose that Y decreases to 1425, r remains constant at 0.05 and there is no change in the expected rate of inflation. What is the percentage change in the equilibrium price level? (b) Suppose that r increases to 0.06 and Y remains at 1500. Assuming that expected inflation remains at πe = .02, what is the percentage change in the equilibrium price level? (c) Suppose that r increases to 0.06. Assuming that πe = .02, what would real output have to be for the equilibrium price level to remain at its initial value?
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Consider an economy with the following features Consumption, C = 100 + 0.9 Y, 1. Income tax, t=-Y 3 Investment, I= 600-30 i Government expenditure, G = 300 Transaction demand money for M, 0.4Y Speculative demand for money, M,=- 50 i Nominal money supply M = 1040 Price level =2 (where Y,stands for disposable income, and i for rate of interest) Derive the IS and LM equations and fund out the equilibrium levels of income and rate of interest.
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