Question 5 [9 marks] The following equations describe a closed economy. Y=C+I+G C = 50 + 0.75(Y T) I = 300 100r (M/P)d = Y
Question 5 [9 marks] The following equations describe a closed economy. Y=C+I+G C = 50 + 0.75(Y T) I = 300 100r (M/P)d = Y 100r G = 500 T = 200 M = 3200 P = 4 The notation used here is identical to that used in the course. Based on this information and the lS-LM model, answer the following questions. (a) Derive the IS equation. Show your workings. (2 marks) (b) Derive the LM equation. Show your workings. (2 marks) (0) Calculate the short-run equilibrium output and real interest rate. Show your workings. (2 marks) (d) Calculate the tax multiplier. Show your workings. (1 mark) (e) Use your answer to part (d) to calculate the size and the direction of the shift in the IS curve for a $50 million increase in unemployment benets. Show your workings. (2 marks)
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