Consider a closed economy with the following information: C = 100 + 0.75(Y - T) I =
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Question:
Consider a closed economy with the following information:
C = 100 + 0.75(Y - T)
I = 200 - 25r
G = 100
T = 100
NX = 50 - 0.2Y
where C is consumption, Y is output, T is taxes, I is investment, r is the interest rate, G is government spending, and NX is net exports.
(a) Determine the equation for the IS curve, which represents the combinations of output and interest rates that satisfy equilibrium in the goods market.
(b) Determine the equation for the LM curve, which represents the combinations of output and interest rates that satisfy equilibrium in the money market.
(c) Determine the equilibrium values of output and the interest rate.
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