Suppose you have the following information from a closed economy: C = 200+ 0.25 YD I = 150+ 0.25Y - 1000i T = 200 G = 250 ī= 0.05 a. Derive the IS relation. (Hint: The IS relation represents an equilibrium in the goods market, where Z=Y, use this t with an equation with (Y) on the left hand side, and (i) on the right hand side) b. Is this an economy where the CB sets the money supply (exogenous) or sets the interest (endogenous)? How would you represent the LM relation in equations?
Suppose you have the following information from a closed economy: C = 200+ 0.25 YD I = 150+ 0.25Y - 1000i T = 200 G = 250 ī= 0.05 a. Derive the IS relation. (Hint: The IS relation represents an equilibrium in the goods market, where Z=Y, use this t with an equation with (Y) on the left hand side, and (i) on the right hand side) b. Is this an economy where the CB sets the money supply (exogenous) or sets the interest (endogenous)? How would you represent the LM relation in equations?
Chapter1: Making Economics Decisions
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Transcribed Image Text:Question 3:
Suppose you have the following information from a closed economy:
C = 200+ 0.25 YD
I = 150+ 0.25Y - 1000i
T = 200
G = 250
ī= 0.05
a. Derive the IS relation.
(Hint: The IS relation represents an equilibrium in the goods market, where Z=Y, use this t
with an equation with (Y) on the left hand side, and (i) on the right hand side)
b. Is this an economy where the CB sets the money supply (exogenous) or sets the interest
(endogenous)? How would you represent the LM relation in equations?
c. What is the equilibrium level of income when the interest rate is 5%?
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Is this an economy where the CB sets the money supply (exogenous) or sets the interest rates (endogenous)? How would you represent the LM relation in equations?
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