INTERMEDIATE MACROECONOMICS: IS-LM Crowding out problem

Work through the lS-LM Crowding out problem on page 93 and draw the graph in your book; refer to your work to respond to the questions below. In part a, the economy achieves equilibrium when the interest rate (r) is percent and income (Y) is equal to In part b, the tax cut causes the IS curve to shift to the . If there is no change in the interest rate, new equilibrium Y is equal to If the interest rate is exible, the effect of the IS shift is to change the equilibrium interest rate to percent and equilibrium Y to How much output was crowded out? Is crowding out partial or complete? 4) ISLM Crowding out problem: Assume the following model of the economy c = 700 + 0.75[Y T] MS = 800 I = 800 75r P = 1 (xed) G = 400, T = 400 W)\" = 0.2Y 40: 1s: Y = 6400 300r LM: Y = 4000 + 2001' a) Solve for the equilibrium values of Y and r and sketch a graph to illustrate equilibrium. Label the IS and LM functions as well as the equilibrium values. 1' Y b) Suppose taxes are reduced to 370 (T = 370) with no change in government spending. Calculate the new equilibrium income assuming no change in the interest rate. If no change in 1', new equilibrium Y = $ 0) Write the new equation for the IS curve. Show the shift in your graph as well as the new equilibrium values of Y and r. New IS: d) How much output was crowded out? $ Is crowding out partial or complete