Answer to Question #221014 in Macroeconomics for Dotty

Question #221014
Derive the IM and IS from the following equation.
Commodity market y=c+I c=200+2/5y and I=1199-12r
Money market
MDT=1/2y
MDS=100-mr
MS=1500
1
Expert's answer
2021-07-28T13:35:02-0400

IS equation gives the good market equilibrium represented by:

Total Income=Aggregate Expenditure= Consumption +Investment.

"y=c+I"

"c=200+\\frac{2}{5}y"

"I=1199-12r"

"y=(200+\\frac{2}{5}y)+1199-12r"

"y=\\frac{2}{5}y+1399-12r"

"y-\\frac{2}{5}y=1399-12r"

"y(1-\\frac{2}{5})=1399-12r"

"y=\\frac{1399-12r}{\\frac{3}{5}}"

"y=2332-20r" ...IS equation


LM equation gives the money market equilibrium represented by:

Money Demand =Money Supply

"(\\frac{M}{P})^d=(\\frac{M}{P})^s=d_1y-d_2r=\\frac{M}{P}"

"r=(\\frac{\\frac{M}{P}}{d_2})+(\\frac{d_1}{d_2})y" …LM equation


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