An economy is initially described by the following equations: C = 60+ 0.8(Y-T) I = 120-5r M/P = Y-25r G = 200 T = 200 M = 3000 P = 3 a. Derive and graph the IS and LM curves. Use the accompanying diagram to graph the IS and LM curves by placing the endpoints at the correct location, then place point A at the equilibrium interest rate and level of income.
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- QUESTION ONE Assume the following functions are for the goods market of a hypothetical economy: (1) I= 150 – 10r; (2) C=700+0.8Yd (3) T=50+0.25Y (4) G=180 Note: Y is income and r is the interest rate a) Derive the IS aurve for this economy. b) Use appropriate scale to sketch the IS aurve is part (a) above. c) Determine and interpret the slope of the IS aurve in part a) above. d) Explain how a change in each of the following will affect the IS curve in part a) above: A balance budget increase in government expenditure of 60 units. An increase autonomous consumption to 800 units An increase in the interest sensitivity of investment to 20. An increase in the marginal propensity to save to .025. A decrease in the marginal tax rate to 0.15. i) ii) iii) iv)The following table contains data on the relationship between saving and income. Rearrange these data into a meaningful order and graph them on the accompanying grid. What is the slope of the line? The vertical intercept? Interpret the meaning of both the slope and the intercept. Write the equation that represents this line. What would you predict saving to be at the $12,500 level of income?The following table contains data on the relationship between saving and income. Rearrange these data into a meaningful order and graph them on the accompanying grid. What is the slope of the line? Interpret the meaning of the slope. What would you predict saving to be at the $12,500 level of income?
- Y6 4.) The following equations describe an economy. Y = C + I + G C = 50 + 0.7(Y-T) I = 108 -200r G = 120 T = 120 (M/P)d = 2Y -200r M = 1000 P = 1 a.) Use the relevant set of equations to derive the IS curve. Graph it on an appropriately labeled graph. b.) Use the relevant set of equations to derive the LM curve. Graph it on an appropriately labeled graph. c.) What is the equilibrium level of income and the equilibrium real interest rate? d.) Now consider that the LRAS curve is Y = 600. Draw the LRAS curve on the IS-LM Model and the AD-AS Model for this economy. (Remember, P= 1) e.) What will happen for this economy to reach long run equilibrium?3. Finally, think about the following applied situation: An economist wants to estimate a line that relates personal consumption C and disposable income I. The economist interviews a few households and obtains the following data: Income Consumption (thousands of dollars) (thousands of dollars) 20 18 18 13 27 21 36 27 37 26 45 36 50 39 c) What is the interpretation of the rate of change? Clearly state the units for the slope and write a sentence explaining what the rate of change tells us in this case.What are the implications of IS and LM curves? What are the factors on which the position and the slope of IS and LM curves depend?
- Assume the following model of the economy: Y =C+I+G C = 120 + 0.5 (Y-T) I= 100 -10r G = 50 T=40 Identify each of the variables and briefly explain their meaning.Hide Assignment Information Instructions The table below is broken down by Month, Real Interest Rate (%), Loanable Funds (trillions of $), Exogenous Change, Equilibria (increases, decreases, or no change. Use the data table to determine the equilibrium real interest rate after certain factors change: Month Real Interest Rate (%) Loanable Funds (trillions of $) Exogenous Change Equilibria (increases, decreases, or no change) January 3% 3 no change no change April 3% 4 increased fund supply ? July 4% 2 decreased fund supply ? December 3% 3 increased fund demand ?For the relationship graphed below: Household Spending = C ($/month) a Question 7 Homework Unanswered b с d 3,200 2,300 1,400 500 0 Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. 1,000 2,000 3,000 Total Income = Y($/month) Spending Function total income is the independent variable and household spending is the dependent variable. total income is the dependent variable and household spending is the independent variable. total income is unrelated to household spending. total income is an exogenous variable, or shift factor.
- Next, consider an economy with these equations: C = 2060 + 0.85Yd, | = 1420, G = 1220 - 0.02Y, X = 1480, M = 1525, and T = -1198 + 0.17YIf your income is $60 and the prices of product A and product B are $4 and $3, respectively, how many units of product B can you purchase when all your income will be used to purchase product B only? Use a number, no decimal value, no commas, no space, no unit of measurement. * Your answer If your income is $60 and the prices of product A and product B are $4 and $3, respectively, what would be the function of the budget line, when product A is assigned on the Y axis? * O Qb = 20 - 1.33 Qa O Qa = 15 - 0.75 Qb O Qb = 15 - 1.33 Qa %3D Qa = 20 - 0.75 QbCalculate business investment for the following data: Y = 55,000 C = 40,000 G= 5,000 NX= - 2000 A.) Investment is $9,800 B.) Investment is 12,000 C.) Investment is 3600 D.) Investment is 1,200