What are new equilibrium interest rate and level of income
Course:- Business Economics
Reference No.:- EM13891977

Assignment Help
Assignment Help >> Business Economics

An economy is initially described by the following equations

C = 500 + 0.75 (Y-T)

I = 1000 - 50r

M/P = Y-200r

G = 1000

T = 1000

M = 6000

P =2

a. Derive and graph the IS curve and the LM curve. Calculate the equilibrium interest rate and level of income. Label that point A on your graph.

b. Suppose that a newly elected president cuts taxes by 20%. Assuming the money supply is held constant. what are the new equilibrium interest rate and level of income? what is the tax multiplier?

c. Now assume that the central bank adjusts the money supplty to hold the interest rate constant. What is the new level of income? What must the new money supply be? What is the tax multiplier?

d. Now assume that the central bank adjusts money supply to hold the level of income constant. What is the new equilibrium interest rate? What must the money supply be? What is the taxt multiplier?


e. Show the equilibrium you calculated in parts (b), (c), and (d) on the graph you drew in part (a). Label them points B, C , D.

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Business Economics) Materials
Jimmy's Clothing Store headquarters are in California whose corporate tax rate is 8.23% regardless of earnings. . The corporation expects its revenue in 2015 to be about $8,59
The Einstein Bagel Corp. has used a frequent buyer program whereby a consumer receives a stamp each time she purchases one dozen bagels for $6. After a consumer accrues 10 sta
It is impossible for a price change to cause no substitution, income, or toal effects. If you believe the statement is false, sketch a graph demonstrating how a price change c
As weekend prices skyrocket more people will play golf during the week and eventually the weekend prices will drop and weekday prices. Differentiate among weekday and weekend
Draw supply and demand for product showing the equilibrium price and quantity. illustrate what would happen if all the transactions costs of market were reduced. generally, wh
Matt was the agency manager at Bobs Insurance's Los Angeles office. He was employed as an at-will employee, and his contract did not specify any fixed duration of guaranteed
What is a duty that managers owe to the corporation? Discuss an example of a positive method that the manager may uphold that duty. Provide an example of an act or omission th
Role taxpayer: taxpayers are consumers, workers, business owners, and investors. is it important for government to understand the incentive effects of each kind of tax used to