Question #62539

Imagine the following open economy: C = 50 + 0.75YD , I = 50 - 0.5i, t = 0.1, G = 100, Im = 0.1Y, Ex = 100. Calculate the slope of the IS curve.

Expert's answer

Y = C + I + G + NX, YD = Y-tY, NX = Ex – Im =>

=> Y = 50 + 0.75*(Y – 0.1Y) + 50 – 0,5i + 100 + 100 – 0.1Y =>

=> Y – 0.75Y + 0.075Y + 0.1Y = 50 + 50 – 0.5i + 100 + 100 =>

=> 0.425Y=300 – 0,5i => Y = 705.9 – 1.18i, -1.18 – the slope of IS curve

=> Y = 50 + 0.75*(Y – 0.1Y) + 50 – 0,5i + 100 + 100 – 0.1Y =>

=> Y – 0.75Y + 0.075Y + 0.1Y = 50 + 50 – 0.5i + 100 + 100 =>

=> 0.425Y=300 – 0,5i => Y = 705.9 – 1.18i, -1.18 – the slope of IS curve

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