Question

C=100+1/2 y^d

I=50-25r

G=100=T

Find equilibrium output assuming interest rate is 15%.

Find IS curve equation and show graphically

Find slope of IS curve.

Government has decided to use expansionary fiscal policy by increasing government spending and tax to 150?

Answer 1

$C= 100+\frac{1}{2}y^d$

$I= 5-25r$

$G=100 = T$

$G= 100$

$T= 100$

$Y= C+I+G$

$100+0.5YD+ 50-25r+100$

$250+0.5YD-25 r$

$250+0.5(Y-100)-25r$

$250+0.5Y-50-25r$

0$0.5Y = 200-25r$

$Y= 400-50r$

$Y= 392.5$

$250+0.5(Y-150)-25r$

$250+0.5Y-75-25r$

$175+0.5Y-75-25r$

$0.5+0.75-25r$

$Y= 350-50r$

$Y= 350-50r$

$Y= 350-(0.15) 50$

$Y= 342.5$