Answer to Question #221503 in Macroeconomics for Dr sam

Question #221503

the following information about an economy is givicen: C=100+0.7YD, I=80-150i, G=60, T=40, Md=Y-3000i and Ms=1000. a. Derive the IS curve b. Derive the LM curve c. find the equilibruim value of Y and i


1
Expert's answer
2021-07-30T08:36:02-0400

a

Y=C+I+GY=100+0.7YD+80-150i+60Y-0.7YD=240-150iY=240150i10.7D\text{Y=C+I+G}\\ \text{Y=100+0.7YD+80-150i+60}\\ \text{Y-0.7YD=240-150i}\\ Y=\frac{240-150i}{1-0.7D}\\


b

Y3000i=1000Y=1000+3000iY-3000i=1000\\ Y=1000+3000i\\


c

10000+250i=4250125i10000+250i=4250-125i

i=5750375=15.33%\text{i}=\dfrac{5750}{375}=15.33\%

Y=0.8(10.25)Y+90050i+1000\text{Y}=0.8(1-0.25)Y+900-50i+1000

Y=0.6Y+190050i\text{Y}=0.6Y+1900-50i

Y=4750125iY=4750-125i

Equilibrium interest rate is:

4750125i=250i+100004750-125i=250i+10000

i=5250375=14%i=\dfrac{5250}{375}=14\%


Equilibrium national income will, therefore, be:

Y=4750125×0.14=4732.5Y=4750-125\times 0.14=4732.5

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