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
Suppose the economy of Stockton produces four goods: strawberries, ice cream, sushi, andcoolers. However, consumers only purchase strawberries, ice cream, and sushi. Coolers a
Newspaper reports frequently suggest that the administration (regardless of who is president) wants the fed to lower interest rates. Why do you think that might be the case?
A book printing company operates under zero-profit condition in a competitive market. Suppose this company invents a new production technology which reduce its average total c
Assuming that prices are set competitively (i.e. set equal to MC of producing services), show in a supply-demand graph how we could measure the “efficiency loss” (or deadweigh
Suppose Mary’s utility function for two goods X and Y is given by: U(X,Y) = 3X1/2 Y1/2. In Addition, Suppose consumption bundle A consists of 10 units of X and 10 units of Y,
The demand and supply curves in the market for college education determine the equilibrium price and quantity of education. Assume the student for college education is given b
Assuming that the Hawaiian Sea Salt Company is able to charge different prices in the two markets, what are the profit maximizing prices and output levels for sea salt in th
Oceana is small country. Using the open-economy macro model, trace the effects of the following actions on savings and investment in Oceania and Oceania’s trade balance. Make