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Andrew Sugden
Andrew Sugden asked in Social ScienceEconomics · 1 decade ago

Economics help needed!!! Short question.?

The following equations describe an economy

C = 0.8Yd

I = 220 – 25i

G bar = 440

TR bar = 150

T = .2Y

L = .1Y – 3i

M bar/P bar = 120

(a) Define the IS curve. Using the above data, derive the equation for the IS curve.

(b) What is the general equation for the LM curve? In this example, what is the equation for the LM curve?

(c) Calculate the equilibrium level of income and interest rates.

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  • Anonymous
    1 decade ago
    Favorite Answer

    A.Y=C+I+G

    Y=0.8(Y-.2Y+TR)+220-25i+440

    Y=0.8Y-0.16Y+120+220-25i+440

    (1-.8+.16)Y=780-25i

    0.36Y=780-25i

    Y=2,166.7-69.4i=IS curve.

    B.120=0.1Y-3i

    0.1Y=120+3i

    Y=1200+30i, LM curve

    C. equilibrium IS=LM

    2166.7-69.4i=1200+30i

    99.4i=966.7

    i=9.73

    Y=1200+291.9=1491.9

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