Consider the following economy:

Cd = 1275 + 0.5 (Y – T) – 200 r

Id = 900 – 200 r

Md / P = 0.5 Y – 200 r

????̅ = 4600

T = G = 450

M = 9000

The abbreviations in the above equation stand for: Cd (intended consumption), Id (intended investment), Md/P (real money demand), Y (level of output), T (tax level) G (government spending), M (amount of money)

a) Find the equation showing the IS curve.

b) Find the equation showing the LM curve.

c) What are the general equilibrium values of the production level (Y), the real interest rate (r) and the price level (P)?

Answer rating: 100% (QA)

Solving the ISLM Model a Equation for the IS curve 1 Substitute government spending G for taxes T in ... View the full answer