Using the attached image as an example, graphically derive the LM curve, using instead a graph that relates money demand to income. Please put the stock of money on the vertical axis and income on the horizontal axis and set this diagram above the LM diagram. b. Please show how the IS curve and the LM curve can be shifted to get an increase in output without a change in interest rates. What kind of mixed monetary and fiscal policy is needed to do this? Will a reduction in interest rates, while holding output constant, do this?

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 72 MD2 "1 MD1 AD1 AD 2 AD3 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: O a. $30 billion. b. $25 billion. O c. $60 billion. O d. $45 billion. Clear my choice

Consider a closed economy where the goods and money markets are described by the following relationships: C = 200 + 0.9(Y – T) 1 = 400 – 15r M = 200 + Y – 100r G = 150 T = 100 M = 2000 P = 2 Where Cis planned consumption, / is planned investment spending, Tis government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. Department of Economics a) Derive the two expressions for the IS and LM equilibrium relationships respectively. Sketch a graph of the two relationships. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output.

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