Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 25, Problem 6TY
To determine
Calculate the equilibrium level of
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Students have asked these similar questions
1. (a) The following equations describe an economy:
C-100+ 0.75Yd
I-50-25r
T-G-50
Where C is aggregate consumption, Y is disposable income, I is aggregate investment. I is
taxes, G is government purchases and r is the rate of interest. Derive the IS curve for the
economy. Show the area of excess demand and excess supply in the goods market.
(b) Draw the graph and explain the derivation of IS curve.
2. (a) Given the following data about the monetary sector of the economy:
Ma -0.4Y-80r
M₁ - 1200 million
Where, Ma is demand for money, Y is the level of income, r is the rate of interest and
M, is the supply of money.
Derive the equation for LM curve and give the economic interpretation of this curve.
Show the excess demand and excess supply in the money market.
(b) Draw the graph and explain the derivation of LM curve.
3. Consider the following economy:
C-100+ 0.8Yd
I-50-25,
G-T-50
M'
P
-200
M₁-Y-25r
1. Calculate the IS and LM curves.
2. Calculate the equilibrium levels of output (national…
6. Consider the following economy: C= 100+0.8Y, I = 200, G = 125, NX= 75. (a) Compute the
equilibrium GDP
(b) If the government decides to increase the spending by $30, how much will be the impact
on equilibrium GDP? (Hint: Spending multiplier = 1/1 - MPC)
The aggregate demand function:
yad =C+1+G₁ = 500+ 0.75Y
is plotted on the graph to the right. The graph also
shows the 45° line where aggregate output Y equals
aggregate demand yad for all points. What happens to
aggregate output if government spending rises by
100?
The equilibrium level of output rises by $ billion.
(Round your response to the nearest billion.)
Consumption Expenditure, C ($ billions)
3000-
2800-
2600-
2400-
2200-
2000-
1800-
1600-
1400-
1200-
1000-
800-
600-
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200-
0-
0
yad =C+I+G₁ = 500 +0.75Y
Y = yad
45°
400 800 1200 1600 2000 2400 2800
Disposable Income ($ billions)
Chapter 25 Solutions
Economics: Principles & Policy
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