Calculate new long-run equilibrium values for income-prices

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Reference no: EM13798067

Y = C + I + G

C + 200 + 0.63Y

I = 1000-2000R

X = 525-0.1Y-500R

M = 0.1583Y-1000R

? = 1.2[(Y_-1 - 6000)/6000]

Money supply is 900, government spending is 1200, ouput is at its potential level of 6000, with a price level of 1.

a. There is a money demand shock, and the new money demand equation is given by M = 0.1583Y-2000R

In the year of the shock, compute the value of GDP, price level, interest rates, and real money supply. Hint: Derive IS and LM equations to find GDP and interest rates.

b. Calculate the new long-run equilibrium values for income, prices, interest rates, and real money supply.

Reference no: EM13798067

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