Macroeconomics

Question 3 (16 Points) Assume The Following Model Of The Economy With The Price Level Fixed At 1 C =

Question 3. (16 points) Assume the following model of the economy, with the price level fixed at 1:
C= 0.8(Y -T)
T= 1,000
I= 800 -20r
G= 1,000
Y=C+1+G
MS/P = M/P= 0.4Y -40r
M = 1,200
a.
(3 points) Write a numerical formula for the IS curve, showing Y as a function of r
alone. (Hint: Substitute out C, I, G, and T.)
b.
(3 points) Write a numerical formula for the LM curve, showing Y as a function of
r alone. (Hint: Substitute out M/P.)
C.
(5 points) What are the short-run equilibrium values of Y, r, Y-T, C, I, private
d.
saving, public saving, and national saving?
(5 points) Assume that G increases by 200. By how much will Y increase in short-
run equilibrium? What is the government-purchases multiplier (the change in Y
divided by the change in G)?Macroeconomics

Back To Top