Answer to Question #307384 in Macroeconomics for Mark

Question

Consider an economy described by the following equations; 𝐶 = 𝑐0 + 0.75(𝑌 −𝑇); 𝑐0 = 1870 − 30𝑟; 𝐼 = 2280 − 70𝑟 (𝑝𝑙𝑎𝑛𝑛𝑒𝑑 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡); 𝐺 = 3000; 𝑁𝑋 = −1200 − 0.1𝑌; 𝑇 = 760 + 0.2𝑌; (𝑀⁄𝑃)𝑑 = 0.5𝑌 − 24𝑟; (𝑀⁄𝑃)𝑠 = 4760.

a) Using the information above, find

i. Autonomous planned spending at zero interest rate

ii. Autonomousplanned spending as a function of interest rate

iii. The multiplier

b) Derive the equations of IS and LM curves

c) Find the equilibrium values of income and interest rate and show the results ona sketch.

Answer 1

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