Answer to Question #286586 in Macroeconomics for Pikah

Question

(Unit: RM million):

(S) = -500 + 0.15Yd

(I) = 400 - 150r

(G) = 500

(T) = 200 + 0.1Y

(Ms) = 5000

Transaction money demand = 0.25Y

Speculative money demand= 500-250r

P = 2

(a) Derive the functions of IS and LM in terms of interest rate (r) and income (Y).

(b) Calculate the slope of the IS and LM curves.

(c) Determine the equilibrium of interest rate and aggregate output in the economy.

(d) If the autonomous consumption has increases to RM500 million,

i. Calculate the new level of economic equilibrium.

ii. Calculate the size of the horizontal and vertical movements that occur.

iii. Sketch the changes that occurred before and after the increase in autonomous consumption and explain.

(e) If the real money supply decreases by RM200 million,

i. Calculate the new level of economic equilibrium.

ii. Calculate the size of the horizontal and vertical movements that occur.

iii. Sketch the changes that took place before and after the increase in the real money supply and explain.

Answer 1

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