Consumption function C=250+0.6(Y-T) Investment I=100-20r Money demand function (M/P)=Y-20r a. Government purchases and taxes are both 100. In the accompanying diagram, graph the IS curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations. b. The money supply M is 2,875 and the price level P is 5. In the accompanying diagram, graph the LM curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations. c. Find the equilibrium interest rate, r, and the equilibrium level of income Y.

Consumption function C=250+0.6(Y-T) Investment I=100-20r Money demand function (M/P)=Y-20r a. Government purchases and taxes are both 100. In the accompanying diagram, graph the IS curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations. b. The money supply M is 2,875 and the price level P is 5. In the accompanying diagram, graph the LM curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations. c. Find the equilibrium interest rate, r, and the equilibrium level of income Y.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter20: Exchange Rates And The Macroeconomy

Section: Chapter Questions

Problem 3TY

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In the IS curve model, the consumer demand can be represented by the following equation: C = a + B(YT) where C is consumption, Y is gross domestic product and T are taxes. Which of the following hold(s) ? Select one or more: a.The value of ß can be any number greater than 0 b. If household income increases by 1, consumption increases by C.The value of a can be any number greater than 0 d. a represents consumption required to survive e. Ca represents consumption for leisure f. According to the equation, the interest rate can influence consumer demand
Figure 1. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. MS P AD₂ AD3 AD1 MD₂ MD Y Refer to Figure 1. Suppose the multiplier is 3 and the government increases its purchases by $25 billion. Also, suppose the AD curve would shift from AD₁ to AD₂ if there were no crowding out; the AD curve actually shifts from AD₁ to AD3 with crowding out. Finally, assume the horizontal distance between the curves AD₁ and AD3 is $30 billion. The extent of crowding out, for any particular level of the price level, is Select one: a. $30 billion. b. $25 billion. c. $60 billion. Od. $45 billion.
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