Suppose That the Following IS-LM Model Represents the ATA Economy

question 91

Essay

Suppose that the following IS-LM model represents the ATA economy.
Y = C^d + I^d + G
C^d = 180+0.7 (Y-T)
I^d = 100 - 18 r - 0.1 Y
T= 400
G= 400
M/P = L
L= 6Y - 120 i
M = 5400
Assume expected inflation is zero and P=1.
a. Find the equation for the IS curve.
b. Find the equation for the LM curve.
c. Find the equilibrium values for output and the interest rate.
d. At this equilibrium, what is the level of consumption and investment?
e. If government purchases (G) increases to $410, find the new equilibrium values for output and the interest rate.
f. What are the effects of the fiscal expansion above on consumption and investment?
g. Using the values in (e), find the new equilibrium values for output and the interest rate if the central bank of ATA increases the money supply to 5600.
h. What are the effects of the monetary expansion above on consumption and investment?
i. Comment on the effects of the two expansionary fiscal and monetary policies above on Y, i, C and I.

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Definitions:

Analgesics

Medications designed to relieve pain without causing unconsciousness or significantly altering sensory perception.

Disease Prevention

Actions or behaviors aimed at preventing the onset of disease or health problems, including vaccinations and healthy lifestyle choices.

Recapping

The act of replacing the cap or cover on something, often referring to the unsafe practice of replacing the needle cap on a syringe in healthcare settings.

Fecal-Oral Route

A transmission pathway for infectious agents through the ingestion of contaminated food or water with fecal matter.