Answer to Question #73325 in Macroeconomics for REMI DJIMI

Question

The Goods Market & The Financial Markets : The IS-LM Model
Suppose that the economy of Biscuitville is characterized by the following goods market behavioural
equations:
C = 200 + 0:25YD
I = 150 + 0:25Y - 1000i
G = 250
T = 200
where there is only one good produced and consumed in the economy: biscuits! Suppose additionally that
nancial markets are characterized by the following equations:
(M=P)d = 2Y - 8000i
M=P = 1600

Answer 1

1600 = (M=P) = 2Y – 8000i
i = - 0.2 + 0.00025Y
Y = (C – T) + I +G
Y = (200 + 0,25YD – 200) + 150 + 0.25Y – 1000( - 0.2 + 0.00025Y ) + 250
Y = 0.25Y + 600
0.75Y = 600
Y = 800.