Question
Based on the information below, answer the following equations: Transactions money demand: Mt = 30 + 0.25Y Precautionary money demand: Mp = 20 + 0.05Y
Based on the information below, answer the following equations: Transactions money demand: Mt = 30 + 0.25Y
Precautionary money demand: Mp = 20 + 0.05Y
Speculative money demand: Msp = 80 - 200i
Consumption: C = 130 + 0.90Yd
Taxation: T = 40 Investment: I = 50 - 200i
Government expenditures: G = 60
Exports, X = 120
Imports, M = 20 + 0.22Y
In addition to the above, the government imposes a 15% tax rate, and the monetary authorities hold money supply at 300
a. Derive the IS and LM equations.
b. Calculate the equilibrium income, interest rate and investment.
c. If government expenditures increases 20, calculate the new equilibrium income, interest rate and investment
d. Is there crowding out? Explain
e. How can the problem in part (d) be resolved? Explain
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