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Assume that the following equations summarize the structure of an economy:

C = 967-43r+0.7(Y -T) I = 1913-59r
L(r,Y) = 0.31Y -53r M/P = 2,111
T = 199+0.2Y G = 1,801

a. Derive the equation for the IS curve.
b. Derive the equation for the LM curve.
c. Compute the equilibrium interest rate and the real output.
d. Suppose that consumer and business confidence decline, resulting in decline in consumption and investment. Thus, new consumption and investment equations are given by C = 820 - 10r + 0.8(Y - T ) and 1, 740 - 40r, respectively. Compute the new equilibrium interest rate and the real output.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M945609

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