Question #58491

After carefully reading all the available information, prepare a two page (double-spaced) essay and answer the following questions:
Assume that we have the following data:
C=100+0.50Y
Ip=100-20r
Mt=0.10Y
Ms=100-10r
M=80
a. Build the IS-LM function.
b. If we assume an increase in Investments by 100 units, calculate again the IS-LM functions.
c. The intersection of IS-LM functions defines four areas. Analyze the behavior of the markets for goods and money for each area.

Expert's answer

C=100+0.50Y, Ip=100-20r, Mt=0.10Y, Ms=100-10r, M=80.

a. The IS–LM functions show the relationship between interest rates and real output, in the goods and services market and the money market.

The IS curve is defined by the equation Y = C + I + G + NX, so Y = 100 + 0.5Y + 100 - 20r - 80, Y = 240 - 40r. The LM curve is defined by the equation Mt = Ms, so 100 - 10r = 0.1Y, Y = 1000 - 100r.

b. If we assume an increase in Investments by 100 units, then the IS function will shift to the right.

c. The intersection of IS-LM functions defines four areas, and the behavior of the markets for goods and money for each area will change.

a. The IS–LM functions show the relationship between interest rates and real output, in the goods and services market and the money market.

The IS curve is defined by the equation Y = C + I + G + NX, so Y = 100 + 0.5Y + 100 - 20r - 80, Y = 240 - 40r. The LM curve is defined by the equation Mt = Ms, so 100 - 10r = 0.1Y, Y = 1000 - 100r.

b. If we assume an increase in Investments by 100 units, then the IS function will shift to the right.

c. The intersection of IS-LM functions defines four areas, and the behavior of the markets for goods and money for each area will change.

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david16.03.16, 21:41Please help

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