Assume that a closed economy is characterized by the following in the short run: C =100+3/4(Y-T)...

 

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Assume that a closed economy is characterized by the following in the short run: C =100+3/4(Y-T) I=170-500r G =125T-100 L(r,Y)=2Y-10,000r M=10,000 P =5 a) Use the information to derive the IS and LM equations. b) Use the IS and LM equations to derive the level of Y, r, C, and I in the short run. c) Calculate how an increase in government spending to G=150 (so G increases by 25) affects the level of Y, r, C, and I in the short-run assuming prices are fixed. d) If you wanted to use monetary policy instead of fiscal policy to increase Y by as much as you did in part C (starting from the original equilibrium in part B), what would the real interest rate (r) have to be and by how much would you need to change the money supply? Assume that a closed economy is characterized by the following in the short run: C =100+3/4(Y-T) I=170-500r G =125T-100 L(r,Y)=2Y-10,000r M=10,000 P =5 a) Use the information to derive the IS and LM equations. b) Use the IS and LM equations to derive the level of Y, r, C, and I in the short run. c) Calculate how an increase in government spending to G=150 (so G increases by 25) affects the level of Y, r, C, and I in the short-run assuming prices are fixed. d) If you wanted to use monetary policy instead of fiscal policy to increase Y by as much as you did in part C (starting from the original equilibrium in part B), what would the real interest rate (r) have to be and by how much would you need to change the money supply?

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Ass ume that a closed economy is characterized by the following in the short run C 100 3 4 Y T l 170 500 r G 125 T 100 L r Y 2 Y 10 000 r M 10 000 P 5 ... View the full answer