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Finding LM & IS equation, equilibrium values of GDP, exchange rate, net exports/trade surplus, investment and budget surplus/deficit. 

1Utilizing the subsiquent macroeconomic relations for the economy of Luv-U-Mania and answer the problems given below. Luv-U-Mania is a small open economy with floating exchange rates.

C = 3.000 * 0.9 (Y-T)

I =12,000 - 110.00 (r)

G = 26,000

T = 6,000 * 0.1 Y

X = 50,000 - 500(e)

M = 4,000 + 10(e) + 0.1Y;

Ms = 100,000

Md = 0.48Y- 150(r);

r = r* = 0.10

Equilibrium condition for the real sector: Y = C + I + G + (X - M)

Equilibrium condition for the monetary sector Md =

(a) Find the LM* equation for this economy.

 

(b) Find the IS* equation for this economy.

 

(c) Find the equilibrium values of the following variables:

 

(d) Equilibrium GDP =

 

(e) Equilibrium Exchange rale (e) =

 

(f)  Equilibrium Net Exports - Equilibrium Trade Surplus =

 

(g)  Equilibrium Investment =

 

(h)  Equilibrium Budget Surplus/Deficit =

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M918089

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