Question

Md=25y-80r,Ms=2400, p=2

a)       Find equilibrium output equation. And Y* when r=12%

b)     Find LM curve equation

c)      Find slope of LM curve.

d)     MS increased to 3000

3. Find equilibrium r

4. Find equilibrium y

Answer 1

Solution

Md=Ms

$2400=25Y-80r$

$r=\frac{25Y-2400}{80}$ The LM equation

$25Y=2400-80r$

r=12%

$Y=\frac{2400-9.6}{25}= 95.6$

When Ms is increased to 3000

$3000=25y-80r$

$80= 25y -3000$

LM equation

$\frac{25}{80}-\frac{3000}{80}$

Equilibrium when r=12

$25Y = 3000-80(0.12)$

$Y = 119.6$

c)