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An economy is described by the following equations:

Desired consumption Cd = 1275 + 0.5(Y - T) - 200r. Desired investment Id = 900 - 200r. Real money demand L = 0.5Y - 200i. Full-employment output Y = 4600. Expected inflation π e = 0. Government Purchases: G = 450
Taxes: T = 450

Money supply M = 9000

a. prepare equations for the IS curve, LM curve (given P) and AD curves (Hint: Using IS curve and LM curve to get the relation between Y and P, this is AD curve).
b. find out the equilibrium values of output, the real interest rate, the price level, consumption and investment.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M942495

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