Suppose the IS curve is Y = 3945-100i and Y = 1500 + 250i is the LM curve. Using these compute: a) The equilibrium interest rate and output (i*and Y*). b) If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate. c) Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number. d) Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).
Suppose the IS curve is Y = 3945-100i and Y = 1500 + 250i is the LM curve. Using these compute: a) The equilibrium interest rate and output (i*and Y*). b) If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate. c) Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number. d) Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
1. Suppose the IS curve is Y = 3945-100i and Y = 1500 + 250i is the LM curve. Using these compute:
a) The equilibrium interest rate and output (i*and Y*).
b) If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate.
c) Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number.
d) Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 5 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education