Consider a closed economy with the following macroeconomic equations: Y = C + I + G C
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Question:
Consider a closed economy with the following macroeconomic equations:
Y = C + I + G
C = a + b(Y-T)
I = c - dR
G = 200
T = 0.2Y
M/P = kY - hR
where Y is real GDP, C is consumption, I is investment, G is government spending, T is taxes, R is the interest rate, M is the nominal money supply, P is the price level, and k, h, a, b, c, and d are constants.
a) Derive the IS curve for this economy.
b) Derive the LM curve for this economy.
c) Find the equilibrium interest rate and real GDP for this economy.
d) Suppose the government increases G by $50. What will be the new equilibrium interest rate and real GDP? Show the calculations.
Related Book For
Macroeconomics
ISBN: 978-1464168505
5th Canadian Edition
Authors: N. Gregory Mankiw, William M. Scarth
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