Question
For the commodity market Y=C+I C=aY+b (0 0) I=cr+d (c <0, d> 0) Where r is the intetest rate. (a )show that, when the commodity
For the commodity market
Y=C+I
C=aY+b (0 0)
I=cr+d (c <0, d> 0)
Where r is the intetest rate.
(a )show that, when the commodity market is in equilibrium, (1-a) Y-cr=b+d
(b) for money market
(money market) Ms=Ms* (Ms*> 0)
(Total demand for money) Md=k1Y+k2r+k3 (k1> 0, k2 <0, k3 <0)
(equilibrium) Md=Ms
Show that when money market is in equilibrium k1Y+k2r=Ms-k3
(c) By solving the simultaneous equation s derived in parts (a) n (b )show that when tje cpmmodity and money markets are both in equilibrium
Y=k2 (b+d)+c (Ms*-k3)/(1-a) k2+ck1
(d) write down the money supply multiplier, Y/Ms* and deduce that an increase in Ms* causes an increase in Y.
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