+1-415-670-9189
info@expertsmind.com
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
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Business Economics) Materials
On June 5, 2003, the European Central Bank acted to decrease the short-term interest rate in Europe by half a percentage point, to 2 percent. The bank’s president at the time,
Is there an ethically acceptable reason to study and use the various attack methods described in this chapter? Can you think of any examples where ethical hacking occurs? Wh
Using marginal analysis to find the optimal quantity of a good The following graph input tool shows the marginal benefit and marginal cost curves for footballs in an economy.
What is a characteristic line? How is this line used to estimate a stock's beta coefficient? Write out and explain the formula that relates total risk, market risk, and divers
A machine has a current salvage value of $10,000, which will drop by $2,000 per year. The maintain costs will be $1,250 per year. What is the marginal cost to extend the servi
Suppose that the market demand for medical care is summarized by the following function: P=400-2Q And the market supply is summarized by the following function: P=50+3Q. Calcu
How do I calculate producer and consumer surplus from this information? : Supplies of gasoline produced also decreased from 1 million barrels to 800,000 barrels. No viable sub
Which of the following goods are likely to be classified as normal goods or services? Inferior? Defend your answer. Beans Tuxedos Used cars Used clothing Computers Books revie