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Derive the equations for the is curve and the lm curve

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Question: Okahao Island is a hypothetical small closed economy in th enothern part of Namibia continent. Autonomous consumption in Okahoa dollars is 200 and government spending = Taxes = 100. The investment function is I = 200 - 25r and the money demand function is (M/P)d = Y - 100r. Money supply is 1000 and the price level is 4.

(difficult to post equation. It must be "in brackets, M over P to the power of d"

Based on the information about okahao island above, answer the questions that follow. Round your answer of to two decimal points where applicable.

1. Derive the equations for the IS curve and the LM curve

2. Find the equilibrium interest rate

3. COmpute the equilibrium level of income.

4. Use the IS-LM model to graphically depict the equilibrium interest rate and level of income calculated in (2) and (3) above. SHow both intercepts

5. Suppose that the government decides to double both the taxes and government spending. Calculate the new rate of interest and the level of investment.

6. Does your answer in (5) above depend on the marginal propensity to consume?

Reference no: EM132196607

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