Question 3Calculative Question

We have an IS-LM Model given below;

C = 175 + 0.25YD

I = 150 + 0.25Y - 1000i

G = 275

T = 200

(M / P) ^d = Y - 4000i

(M / P) ^s = 800

a)Derive the IS and LM equations

b)Calculate the equilibrium level of income (Y) and the interest rate (i).

Question 4Calculative Question

Economy X would like to use a certain combination of capital and labor with the demand variables to determine the quantity output. Based on the below information

Aggregate Demand Aggregate Supply Equilibrium

Y^AD = C + I + G Y^AS = A KL^1- Y^R = 0.5Y^AD + 0.5Y^AS

C = 300 + YDA= (1 + g) A_o

YD = Y^R + TR - tY^RK = 32.86

TR = 40L = 154.3

G = 130g = 7.5%

I = 100A_o = 100

t = 0.1 = 0.25

Where C is private consumption, YD is disposable income; TR, G and I are transfer payments, government spending and total investment, respectively. A in the index of technology and K and L are capital and labour inputs. A0 is the initial levels of A and L, both assumed to be 100, while g is the growth rates. The MPC is 0.60All figures are in $m except for t, g, and MPC values which are decimals.

Calculate the equilibrium level of income (Y^R) for Economy X.