C=500+0.5Y_D I=300-50i+0.05Y LM: i=50+Y/20 1) Assume an economy close to international trade is characterised by the following

 C=500+0.5Y_D

I=300-50i+0.05Y

LM: i=50+Y/20

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1) Assume an economy close to international trade is characterised by the following equations: The government spends an amount of 1000 and collects 700. a) Write the equilibrium condition in the goods' market (IS curve) and represent it on a graph placing the interest rate on the vertical axis and production on the horizontal axis. b) Use the IS-LM model to find the equilibrium levels of production/income and of the interest rate, and represent it graphically. c) Check that the equilibrium satisfies the equality between savings and investments. d) What is the effect of a fiscal expansion of 500 on equilibrium production/income? e) Without performing any computation, discuss the impacts of fiscal and monetary policies on investments. 1) Assume an economy close to international trade is characterised by the following equations: The government spends an amount of 1000 and collects 700. a) Write the equilibrium condition in the goods' market (IS curve) and represent it on a graph placing the interest rate on the vertical axis and production on the horizontal axis. b) Use the IS-LM model to find the equilibrium levels of production/income and of the interest rate, and represent it graphically. c) Check that the equilibrium satisfies the equality between savings and investments. d) What is the effect of a fiscal expansion of 500 on equilibrium production/income? e) Without performing any computation, discuss the impacts of fiscal and monetary policies on investments.

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