Suppose that
C = 60 + 0.8YD
I = 150 - 10r
G = 250
T = 200
Ms = 100
Md = 40 + 0.1Y - 10r
( all the magnitudes are in real terms)
a. Write the equations for the IS and LM schedules.
b. Find the equilibrium values for income and the interest rate .
Suppose we change the model such that investment is assumed to be completely
interest inelastic; investment does not depend on the rate of interest and we have
I = 150.
c. Write the new equations for the IS and LM schedules. Show the schedules graphically.
d. Find the new equilibrium values for income and the interest rate.