Consider the economy of hicksonia
Course:- Business Economics
Reference No.:- EM13891976

Assignment Help
Assignment Help >> Business Economics

Consider the economy of Hicksonia.

A. The consumption function is given by C = 300 + 0.6(Y-T)

Investment function is I = 700 - 80r

Government purchases and taxes are both 500. For this economy, graph the IS curve for r ranging from 0 to 8.

B. The money demand function in Hicksonia is (M/P)^d = Y - 200r

The money supply M is 3000 and the price level P is 3. Graph the LM curve for r ranging from 0 to 8

C. Find the equilibrium interest rate r and the equilibrium level of income Y.

D. Suppose the government purchases are raised from 500 to 700. How much does the IS curve shift? What are the new equilibrium interest rate and level of income?

E. Suppose instead that the money supply is raised from 3000 to 4500. How much does the LM curve shift? What are the new equilibrium interest rate and level of income?

F. With the initial values for monetary and fiscal policy, suppose that the price level rises from 3 to 5. What happens? What are the new equilibrium interest rate and level of income?


G. For the initial value of monetary and fiscal policy, Derive and graph an equation for the aggregate demand curve. What happens to this aggregate demand curve if fiscal or monetary policy changes, as in parts (d) and (e)?

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Business Economics) Materials
Guy? Ferrell, a student who lives in the country? Paragon, observes that analysts are cutting their growth forecasts for the economy for the coming year. Most of them based th
A tractor costs $19,195 and will be used for 5 years, at which time its estimated salvage value will be $4,000. Maintenance costs are estimated to be $100 for the first year,
Scottish political economist Adam Smith didn't trust situations where the people who provide the money for a business don't actually manage the company. In The Wealth of Nat
One point made is that most demand curves are downward sloping. Can you think of any situation where an individual's demand curve for a product is upward sloping.
Now that you are an expert on elasticities, what do you think would be the best time of year to raise prices, and why? What do you think the elasticities are in the flower bus
Suppose the value of the cpi is 1.100 in year one 1.122 in year two, and 1.133 in year three. Assume also that the price of computers increases by 3% between year one and year
After 2008 the US Government sought the solution to the crisis. They consider between the Fiscal stimulus and the Monetary expansion. Use a positive-sloped LM and a negative-s
In 2008, Poland was forced to devalue its currency against the Euro. Which of the following groups was most damaged? Which of the following central banks use(s) the channel sy