Liquidity preference function for an economy is specified as: L=L, +L(Y,r)
Money supply function: M = PM,
(i). Determine the LM curve equation for the macro system.
(4 marks)
ii). If the economy is described by the following specifications:
C=200+0.8Y
M" = 240
Md=0.2Y-10r
I = 240-10r
Calculate equilibrium income and rate of interest for the economy. iii). Suppose the expenditure sector of the economy is given as: Y=Co+c[Y-(T+T(Y)+R,,r)]+I+I(Y,r) +Go
(4marks)
Note: All variables and characters carry equal connotations used in macro economic analysis.
(a). Establish both the tax and government expenditure multipliers for the economy.
(4marks)
(b). Determine the Balanced Budget Multiplier (BBM) for the economy and prove that it is #0.
(3marks)