Question #66481

Consider the following IS–LM model: C = 200 + .65YD, I = 150 + .25Y - 1000i, G = 250, T = 200, Md>P = 2Y - 8000i, M/P = 1600
a. Derive the IS relation and LM relation
b. Solve for the equilibrium interest rate.
c. Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G.
d. Now suppose that the money supply increases to M/P = 1,840. Solve for Y, i, c, and T, and describe in words the effects of an expansionary monetary policy.
e. Set M/P equal to its initial value of 1,600. Now suppose that government spending increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, i, and C.

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