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Part III: Shock to Wealth-Holder Confidence Suppose despite the contraction caused by the public health measures, wealth-holders were comforted by policy responses and become less
Part III: Shock to Wealth-Holder Confidence Suppose despite the contraction caused by the public health measures, wealth-holders were comforted by policy responses and become less disquieted; i.e., wealth-holder confidence increases. The economy now can be characterized by the following set of equations: (1) L1 =0.2Y (5)1 = 180 1.5r (2) L2 = 215 25r (6)S=-35+01(Y T) B)m=175 (1) T = 100 + 0.06Y (4) MB = 90 (8) G = 150 6. Use the money-market clearing condition to find the new LM function? 7. Calculate the equilibrium values of r, Y, I, S, C, T, L;, L2, and (G-T). (Note: this set of conditions corresponds to the IS function of the initial conditions). 8. Compared to the initial conditions, which variables increased and which variables decreased
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