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Numerical for IS - LM Model There is following information for an economy about its goods and money markets. Consumption: C = 3 6 0
Numerical for ISLM Model
There is following information for an economy about its goods and money markets.
Consumption: C Ya where Ya YT
Investment: I i
Government Expenditure: G
Tax: T
Price level: P
Nominal Money Supply: M
Demand for Money: L Y i
i Derive the IS and LM equations and equilibrium level of income and interest rate for the economy.
ii What is the effect of rise in real money supply by on the equilibrium level of income and interest rate?
iii. What is the effect of rise in government expenditure by on the equilibrium level of income and interest rate assuming no change in nominal money supply, which remains at and P
iv Compute the fiscal and monetary policy multipliers
V Compute the increase in government expenditure required to achieve full employment if the full employment level of income Y
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