Question
Typed solution full explanation Assume a closed economy described by the following equations: C = 300 + 0.60(Y-T); I = 300- 20R; G = 200;
Typed solution full explanation
Assume a closed economy described by the following equations: C = 300 + 0.60(Y-T); I = 300- 20R; G = 200; T = 300; M = 5000; (M/P)d = 6Y - 100R; SRAS: P = 2; LRAS : Y= 800. This economy is not necessarily starting in a position where the short run and long run equilibrium are the same. That is for you to find out in this exercise. a) Find an expression for the IS curve. b) Find an expression for the LM curve. c) Find short run equilibrium level of output, price, and real interest rate. d) Find an expression for the Aggregate Demand Curve (AD). e) Find the long run equilibrium level of output, price, and real interest rate. f) Plot your results from parts (c), (d) and (e) using the IS-LM model and the AD-AS model, stacked vertically. Then explain in your own words the expected transition (if any) from the short to long run equilibrium.
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