Consider the following IS-LM Model C = 202 + 0.48Yd I = 148 + 0.14Y - 834i G = 2

ID: 2506664 • Letter: C

Question

Consider the following IS-LM Model

C = 202 + 0.48Yd

I = 148 + 0.14Y - 834i

G = 275

T = 218

(M/P)^d = 2.4Y - 7434i

M/P = 1548

IS EQUATION Y=1361.47-2194.74i

LM EQUATION i=-0.20823+0.00032y

a. solve the equilibrium real output,Y. 1068

Y=? round to the nearest integer

B. solve for equilibrium interest rate?

c. determine the equilibrium value of C?

d. determine the equilibrium value of I?

E. using the answers above, determine the value of C+I+G? round to the nearest integer.

a) 1068

b) 13.35%

c) 610

d) 186

e) 1071

a) Solve the IS and LM equation equate i from both the equation

we will get Y = 1068

b) put the value of Y in IS or LM equation to get the value of i

the equilibrium interest rate i from IS or LM equations, i = 13.35%

c) the value of Yd = Y - tax = 1068 - 218

C = 202+0.48*(1068-218)

= 610

d) put the value in I eq to get

equilibrium level of Investment I= 148 + 0.14Y - 834i

=148+0.14*1068-834*0.1336

I = 186.24

e) sum of three value are = 610 + 186 + 275 = 1071(approx by rounding off)

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