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Consumption Function: C=1275 +0.5 (Y- T) Investment Function: I=175 - 400/ +0.1Y Money Market Equilibrium: (M/P) =0.5Y-200i Price Level: P=1 Expected inflation and risk premium
Consumption Function: C=1275 +0.5 (Y- T) Investment Function: I=175 - 400/ +0.1Y Money Market Equilibrium: (M/P) =0.5Y-200i Price Level: P=1 Expected inflation and risk premium both are zero. Government spending on goods and services, G=480, Tax, T=460. Fed maintains the nominal interest rate (the policy rate) at 15 percent (or 0.15). Determine the equations for the IS and IM curves. Calculate the equilibrium values of GDP, Y, interest rate, i, consumption, Cand Investment, I (Express interest rate as a percentage, rounded to two decimal places. Round, Y, Cand I to one decimal place). Determine the level of money supply in the economy. (1 Assuming that Fed still maintains the nominal policy rate at 15 percent Determine the equations for the IS-IM curves if, Gincreases by 40. Calculate the equilibrium value of Y. Suppose that after the increase in G(as described in (ii) above), Fed wants to maintain the original GDP level (as calculated in (i) above), in order to reduce the build- up of any inflationary pressure. Calculate by how much Fed should adjust the interest rate to accomplish that goal. Calculate the necessary adjustment in money supply that will adjust the interest rate as calculated above. Draw a graph of the IS-IM model to explain your
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