The commodity and money markets for an economy are defined by the following equations: Commodity Market C = 640 + 0.8Yd 1 = 80 – 80r G = 160 T = 100 Money Market Ma = 50 + 0.8Y –r M, = 80 i) Derive the IS and LM curve ii) Compute the equilibrium values of Y and r in this economy
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- Answer choices for part 1 blanks: Blank 1: shortage, surplus Blank 2: falls, remains the same, rises Blank 3: decrease, do not change, increase Blank 4: decrease, do not change, increase There is one last part to this question that did not fit in the picture: Suppose the economy experiences domestic goods become relatively less expensive than foreign goods. Adjust the graph to show the effect of domestic goods become relatively less expensive than foreign goods on the economy. Which of the following best describes the effect of domestic goods become relatively less expensive than foreign goods? a.) The price level rises back to PE, and Real GDP increases from $30 trillion to $35 trillion. b.) The price level rises even higher above PE, and Real GDP increases from $30 trillion to $35 trillion. c.) The price level falls even further below PE, and Real GDP decreases from $30 trillion to $35 trillion. d.) The price level falls but remains above PE and Real GDP…Suppose the following transactions occur during the current year: 1. Kevin orders 50 cases of mezcal from a Mexican distributor at a price of $90 per case. 2. A U.S. company sells 300 spark plugs to a Korean company at $5.00 per spark plug. 3. Rajiv, a U.S. citizen, pays $900 for a TV he orders from Cosmart (a U.S. company). Complete the following table by indicating how the combined effects of these transactions will be reflected in the U.S. national accounts for the current year. Hint: Be sure to enter a “0” if none of the transactions listed are included in a given category and to enter a minus sign when the balance is negative. Amount (Dollars) Consumption Investment Government Purchases Imports Exports Net Exports Gross Domestic Product (GDP)3. Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. Supply Demand 100 200 300 400 500 LOANABLE FUNDS (Billions of dollars) A INTEREST RATE (Percent) m 0 0 600
- A government scholarship program would be designed to shift the curve to the .6, Let D(p,q) and E(p, q) be the demands for two commodities when the prices per unit are p and q, respectively. Suppose the commodities are substitutes in consumption, such as butter and margarine. What are the normal signs of the partial derivatives of D and E with respect to p and q? Explain.4. Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. INTEREST RATE (Percent) 9 8 0 0 100 Supply Demand 200 300 400 500 600 700 800 900 1000 LOANABLE FUNDS (Billions of dollars)