Desired consumption: C=580+ [0.55 ×(y-7)]-45r Desired investment: Real money demand: Full-employment output: Y = 2,210 Expected inflation: π = 0.03 In this economy the government always has a balanced budget, so T = G, where T is total taxes collected. a. Suppose that T =G=150 and that M=4,320. Use the classical IS-LM model to determine the equilibrium value of the real interest rate. (Hint: In the classical model output always equals its full-employment level.) The equations are: IS: Y=2,394-189r LM: Y = 5+7,200 Id=430-40r L=0.6Y-95i 200 (+/-) + + 158r The initial equilibrium values of output, real interest rate, consumption, investment and the price level were found to be: Output = 2,210 Real interest rate=0.97 Consumption = 1,669.4 Investment = 391.2 Price level = 3.51 Investment = b. Suppose that the money supply changes to M=4,480. Use the classical IS-LM model to find the general-equilibrium values of the real rate of interest, consumption, investment, and the price level. Real rate of interest, r= (Enter your response rounded to two decimal places.) Consumption = (Enter your response rounded to one decimal place.) (Enter your response rounded to one decimal place.) Price, P=. (Enter your response rounded to two decimal places.)
Desired consumption: C=580+ [0.55 ×(y-7)]-45r Desired investment: Real money demand: Full-employment output: Y = 2,210 Expected inflation: π = 0.03 In this economy the government always has a balanced budget, so T = G, where T is total taxes collected. a. Suppose that T =G=150 and that M=4,320. Use the classical IS-LM model to determine the equilibrium value of the real interest rate. (Hint: In the classical model output always equals its full-employment level.) The equations are: IS: Y=2,394-189r LM: Y = 5+7,200 Id=430-40r L=0.6Y-95i 200 (+/-) + + 158r The initial equilibrium values of output, real interest rate, consumption, investment and the price level were found to be: Output = 2,210 Real interest rate=0.97 Consumption = 1,669.4 Investment = 391.2 Price level = 3.51 Investment = b. Suppose that the money supply changes to M=4,480. Use the classical IS-LM model to find the general-equilibrium values of the real rate of interest, consumption, investment, and the price level. Real rate of interest, r= (Enter your response rounded to two decimal places.) Consumption = (Enter your response rounded to one decimal place.) (Enter your response rounded to one decimal place.) Price, P=. (Enter your response rounded to two decimal places.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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If someone could show me how to solve this IS-LM problem that would be very helpful. Thanks! Show tr
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If someone could show me how to solve this IS-LM problem that would be very helpful. Thanks!
Show transcribed image text Desired consumption:
C^d = 580 + [0.55 x (Y - T)] - 45r
Desired investment: I^d = 430 - 40r
Real money demand : L = 0.6 Y - 95i
Full-employment output: Y = 2,210
Expected inflation pi^c : 0.03
In this economy the government always has a balanced budget, so T = G, where T is total taxes collected.
a. Suppose that T = G = 150 and that M = 4,320. Use the classical IS-LM model to determine the equilibrium value of the real interest rate. (flint: In the classical model output always equals its full-employment level.)
The equations are: The initial equilibrium values of output, real interest rate, consumption, investment and the price level were found to be: Output = 2,210 Real interest rate = 0.97 Consumption = 1,669.4 Investment = 391.2 Price level = 3.51 b. Suppose that the money supply changes to M = 4,480. Use the classical IS-LM model to find the general-equilibrium values of the real rate of interest, consumption, investment, and the price level. Real rate of interest, r = Consumption = Investment = Price, P =
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