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Consider an economic with the following information. Consumption: C=360 + 0.8Yd, where
Yd=Y-T
Investment: I = 640 -6i
Government expenditure: G=160 Tax: T=200 Price level: P=3
Nominal Money Supply: M=1200
Demand for Money: L= 0.2Y -4i
i. Derive the IS/LM equations (Y in terms of i and other variables) and the equilibrium income
and interest rate.
ii. What is the effect of rise in real money supply by 200 on the equilibrium interest rate and
income.
iii. What is the effect of a rise in government expenditure by 200 on the original of equilibrium
of income and interest rate. (M still M=1200 and P=3).

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Consider an economic with the following information. Consumption C=.pdf

  • 1. Consider an economic with the following information. Consumption: C=360 + 0.8Yd, where Yd=Y-T Investment: I = 640 -6i Government expenditure: G=160 Tax: T=200 Price level: P=3 Nominal Money Supply: M=1200 Demand for Money: L= 0.2Y -4i i. Derive the IS/LM equations (Y in terms of i and other variables) and the equilibrium income and interest rate. ii. What is the effect of rise in real money supply by 200 on the equilibrium interest rate and income. iii. What is the effect of a rise in government expenditure by 200 on the original of equilibrium of income and interest rate. (M still M=1200 and P=3).