he following IS-LM model (all amounts are in millions of dollars): C = 50 + 0.6 YD T = 20 G = 300 I = 450 + 0.2 Y - 1500 i Derive the IS equation in the form Y = function (i, ….). The central bank sets an interest rate of 10%. What is the full SR model eqm Y? Use (M/P)d=3Y– 4000i to calculate what the real Ms is at this full SR eqm. Graph this eqm in 3 separate graphs: i-Y, i-(M/P), and Z-Y spaces. You may link these graphs up or leave them separate. Suppose Congress decides to decrease G from 300 to 295, cet. par. Provide a specific $ amount for the new eqm Y. Show this “shock,” with its appropriate name, in the 3 graphs of part b. above. Present and discuss all changes in all components of IS and LM using directional arrows.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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. Consider the following IS-LM model (all amounts are in millions of dollars):

C = 50 + 0.6 Y_D

T = 20

G = 300

I = 450 + 0.2 Y - 1500 i

Derive the IS equation in the form Y = function (i, ….).
The central bank sets an interest rate of 10%. What is the full SR model eqm Y? Use (M/P)^d=3Y– 4000i to calculate what the real M^s is at this full SR eqm. Graph this eqm in 3 separate graphs: i-Y, i-(M/P), and Z-Y spaces. You may link these graphs up or leave them separate.
Suppose Congress decides to decrease G from 300 to 295, cet. par. Provide a specific $ amount for the new eqm Y. Show this “shock,” with its appropriate name, in the 3 graphs of part b. above. Present and discuss all changes in all components of IS and LM using directional arrows.

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