6) Consider the following IS-LM model: C = 200 +0.25YD I = 150+ 0.25Y -1000i G = 250 T = 200 M - 8,000i P M = 1,600 P a. Derive the IS relation. b. Derive the LM relation. c. Solve for the equilibrium real output. d. Solve for the equilibrium interest rate. e. Solve for the equilibrium values of C and I and verify the value you obtained for Y by adding up C, I, and G. = = 2Y -
6) Consider the following IS-LM model: C = 200 +0.25YD I = 150+ 0.25Y -1000i G = 250 T = 200 M - 8,000i P M = 1,600 P a. Derive the IS relation. b. Derive the LM relation. c. Solve for the equilibrium real output. d. Solve for the equilibrium interest rate. e. Solve for the equilibrium values of C and I and verify the value you obtained for Y by adding up C, I, and G. = = 2Y -
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![6) Consider the following IS-LM model:
C = 200+ 0.25YD
I = 150+ 0.25Y -1000i
G = 250
T = 200
M
= 2Y - 8,000i
M
= 1,600
P
a. Derive the IS relation.
b. Derive the LM relation.
c. Solve for the equilibrium real output.
d. Solve for the equilibrium interest rate.
e. Solve for the equilibrium values of C and I and verify the value you obtained for Y by
adding up C, I, and G.
M
1,840
f. Now suppose that the money supply increases to P
Solve for Y, i, C, and I,
and describe in words the effects of an expansionary monetary policy.
M
P
g. Set
equal to its initial value of 1,600. Now suppose that government spending
increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, i, and
C.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F79bf7028-51de-4a1d-a114-2e4d414c359e%2F1d363acd-2a37-4758-a85e-da68fb3eb396%2Fdlahvy_processed.jpeg&w=3840&q=75)
Transcribed Image Text:6) Consider the following IS-LM model:
C = 200+ 0.25YD
I = 150+ 0.25Y -1000i
G = 250
T = 200
M
= 2Y - 8,000i
M
= 1,600
P
a. Derive the IS relation.
b. Derive the LM relation.
c. Solve for the equilibrium real output.
d. Solve for the equilibrium interest rate.
e. Solve for the equilibrium values of C and I and verify the value you obtained for Y by
adding up C, I, and G.
M
1,840
f. Now suppose that the money supply increases to P
Solve for Y, i, C, and I,
and describe in words the effects of an expansionary monetary policy.
M
P
g. Set
equal to its initial value of 1,600. Now suppose that government spending
increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, i, and
C.
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