Consider the following economy: a. Suppose that T = G = 450 and that M = 9000.
Question:
a. Suppose that T = G = 450 and that M = 9000. Find an equation describing the IS curve. (Set desired national saving and desired investment equal, and solve for the relationship between r and Y, given P.) Finally, find an equation for the aggregate demand curve. (Use the IS and LM equations to find a relationship between F and P.) What are the equilibrium values of output, consumption, investment, the real interest rate, and the price level?
b. Suppose that T = G = 450 and that M = 4500. What is the equation for the aggregate demand curve now? What are the equilibrium values of output, consumption, investment, the real interest rate, and the price level? Assume that full-employment output F is fixed.
c. Repeat part (b) for T = G = 330 and M = 9000.
Step by Step Answer:
Macroeconomics
ISBN: 978-0321675606
6th Canadian Edition
Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone