Answer to Question #219469 in Macroeconomics for Yogesh

Question

Q2
(a) . Given that in an economy
C = 0.8 (1-t) Y
t = 0.25
I = 900 - 50i

Answer 1

The equilibrium level in the economy is derived from the IS And LM curve equilibrium position.

$Y=C+I+G$

$Y=0.8(1-0.25)Y+900-50i+800$

$Y=0.6Y+1700-50i$

$Y=0.25(1700-50i)$

$Y=4250-125i$ (for IS curve equilibrium)

For LM curve equilibrium ;

$0.25Y-62.5i=500$

$Y=2000+250i$