This problem asks you to analyze theISLMmodel algebraically. First the consumption function and investment function from the goods market will be examined. Then, the money demand function from the money market will be examined.

Which would have more impact on equilibrium Y: a $100 increase in government purchases or a $100 tax cut? c. A $100 will create bigger horizontal shift in the IS curve. increase in government purchases decrease in taxes The m ev glances is a linear function income ()) and the interest rate (r).9 EH Xnip it. The money market: Now suppose demand for real money balances is a linear function of income (Y) and the interest rate (r): L(r, Y) = eY fr, where: e > 0 and f > 0. The parameter e measures the sensitivity of money demand to Y, while the parameter 1' measures the sensitivity of money demand to r. d. Solve for r as a function of Y, M, and P and the parameters 6 and f. Answe= units How does the slope of the LM curve depend on the parameter f, the sensitivity of money demand to r? e. The higher the value off, the is the LM curve. steeper atter How does the slope of the LM curve depend on the parameter e, the sensitivity of money demand to Y? f. The higher the value of e, the is the LM curve. steeper flatterXnip # 1 This problem asks you to analyze tie IN-LM moder algebraically. First une consumption function and Investment function TOIn the goods market will be examined. Then, the money demand function from the money market will be examined. The Goods Market: Suppose consumption is a linear function of disposable income: C(Y - T) = a + b(Y - T), where a > 0 and 0 0 and d > 0. The parameter d measures the sensitivity of investment to the interest rate. The parameter c is a constant, often called autonomous investment. a. Solve for Y as a function of r, the exogenous variables G and T, and the model's parameters a, b, c, and d. Y = How does the slope of the IS curve depend on the parameter d, the interest sensitivity of investment? b. The higher the value of d, the the IS curve. steeper flatter Which would have more impact on cyumunum r: a $100 increase in government purchases or a $100 tax cut