Question
Consider the following equations for a small open economy for both the goods and money markets. C = 3000 + 0.8Y d ; T =
Consider the following equations for a small open economy for both the goods and money markets.
C = 3000 + 0.8Yd; T = 1000 + 0.3Y; G = 6000; TR = 500; I = 4000 + 0.24Y - 100r; M = 3000 + 0.2Y; X = 2000; LP = 1000 + 0.15Y; LT = 2000 + 0.25Y - 15r; Ls = 1000 - 35r; MS = 40,000; P= 4
a. Derive both the IS and LM equations for the economy and compute the Equilibrium level of Income and Interest Rate.
b. At this equilibrium level of income and interest, compute the levels of disposal income, total transactions demand for money, investment demand and the value of net exports.
c. Suppose the government raises govt. expenditure by 20% in order to increase aggregate demand. Show how this policy results in the crowding out effect.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
