Question: Given the TobinBlanchard model e = 0.8y + 0.2q + 7 16 = 0.5y 0.25r y = 2(e y) r = 0.15y +

Given the Tobin–Blanchard model e = 0.8y + 0.2q + 7 16 = 0.5y − 0.25r y˙ = 2(e − y)

r = 0.15y + q˙

q

(i) Find y∗ and q∗.

(ii) Show that the fixed point (y∗, q∗) is a saddle point equilibrium.

(iii) Derive the equation of the stable arm of the saddle point.

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