(a) Consider the IS-LM model made up of two sectors: the real goods sector and the...

  

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(a) Consider the IS-LM model made up of two sectors: the real goods sector and the monetary sector. The goods sector involves the following equations: Y=C+I+Go C = a + b(1-t)Y l=d-el Where Y (national Income), C (consumption), / (Investment), and (interest rate) are endogenous variables, Go (government spending) is the exogenous variable, and a, b, d, e, and t are structural parameters. The monetary sector involves the following equations: Mamky-hi M-M M = M That can be condensed in the following single equation: Mo= k hi where M, (money supply) is an exogenous variable and k and I are structural parameters. (1) Set up the model of 4 equations in matrix form Ax= b. [20 marks] (ii) Compute the determinant of the matrix of coefficients A. (a) Consider the IS-LM model made up of two sectors: the real goods sector and the monetary sector. The goods sector involves the following equations: Y=C+I+Go C = a + b(1-t)Y l=d-el Where Y (national Income), C (consumption), / (Investment), and (interest rate) are endogenous variables, Go (government spending) is the exogenous variable, and a, b, d, e, and t are structural parameters. The monetary sector involves the following equations: Mamky-hi M-M M = M That can be condensed in the following single equation: Mo= k hi where M, (money supply) is an exogenous variable and k and I are structural parameters. (1) Set up the model of 4 equations in matrix form Ax= b. [20 marks] (ii) Compute the determinant of the matrix of coefficients A.

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The image shows a set of equations from the ISLM model which is a macroeconomic tool used to analyze the interaction between the real goods sector and ... View the full answer