Find

(a) the level of income and the rate of interest that concurrently bring equilibrium to the economy and

(b) estimate the level of consumption C, investment I, the transaction-precautionary demand for money Mt, and the speculative demand for money Mw, when the money supply Ms =

300, and

(a) Equilibrium in the commodity market (IS) exists when

Moving everything to the left,

Equilibrium in the money market (LM) occurs when

Simultaneous equilibrium in both markets requires that

Multiplying (4.54) by 2 as explained in Section 4.5,

Adding (4.56) to (4.55) to eliminate i,

Then substituting Y = 800 in (4.54) or (4.55),

(b) At Ye = 800 and ie = 0.12,

Transcribed Image Text:

C 102+0.7Y I = 150 - 100i M = = 0.25 Y M124 200i -