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I have been working on this problem for a while now and am stuck. Can someone please help? Q4 [60 points] Consider the following numerical
I have been working on this problem for a while now and am stuck. Can someone please help?
Q4 [60 points] Consider the following numerical example of the IS-LM model: C = 100 + 0.75YD I = 225 + (1le - 6001 G = 450 T = 100 a. Derive the IS relation. 13. The central bank sets an interest rate of ?5% (i = 0.75). How is that decision represented in the equations? (3. What is the level of real money supply when the interest rate is I~(5%? Use the expression: M - 31' 9900' P c d. Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding 0, I, and G. e. Now suppose that the central bank cuts the interest rate to 5% (i=0.05). How does this change the LM curve? Solve for Y, I, and C, and describe in words the effects of an expansionary monetary policy. What is the new equilibrium value of M/P supply? 1'. Return to the initial situation in which the interest rate set by the central bank is '?5%. Now suppose that government spending increases to G = 600. Summarize the effects of an expansionary scal policy on Y, I, and C. What is the effect of the expansionary scal policy on the real money supplyStep by Step Solution
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