Answers
![Y=C+I+G Y = [200+0.8(T-T)-500r1+[200-500r]-G =[200+0.8(1.-20-025)-500r1+[200-500r]-G = 200 + 0.8Y-16-021-500r 200-500r G 1, 000r-G-0.41.</p><p>3 84 G-04384) 1,000 This is the function for IS curve. The position of the IS curve depends on the autonomous spending. The government spending (G) is part of the autonomous spending which does not depend on income level. Hence, an increase in G will shift the IS curve to the right and vice-versa. Suppose the money supply is 9,890.</p><p>Derive the expression for LM curve as follows:](http://img.homeworklib.com/questions/ac9f8cd0-6e57-11ea-9425-73c32f6111be.png?x-oss-process=image/resize,w_560)
![Y=C+I+G Y = [200 +0.8(Y-T)-500r]+[200-500j-G Y-[200+0.8(Y-20-025r)-500r] 1200-500r]+196 Y 200 0.8Y-16-0.2Y-500 200-500r +196 y = 580 0.61 1, 0007. 0.4Y-580-1,000r E=1,450-2.500r! This is the expression for aggregate demand. If the full employment level is Ύ-1,000, the real interest rate 1S: Y-1,450-2,500r 1,000 1,450-2,500r 2,500r 450 r 0.18 or 18% Hence, the realint is-LM) to solve for P, as follows: eres rate ism Replace the values of r and T LM equation (peneral equil brim](http://img.homeworklib.com/questions/ad7f26c0-6e57-11ea-9571-fdc72a4674a2.png?x-oss-process=image/resize,w_560)
![9,890 250 9,890 0.18-50.5a.00)-30+25 39.56 0.18 2-+0.10 39.56 0.18 -2.10- 39.56 _-2.10-0.18 39.56 1.92 P 20.60 Hence, the price level is 20.60 Suppose the government purchases are increased to 216.</p><p>The expression for the aggregate demand is derived as follows Y = [200+ 0.8(T-T)-500r1+ [200-500r]-G Y=[200+0.8(T-20-025Y)-500r]+[200-500r]+216 У-200+ 0.8y-16-0.27-500r + 200-500r + 216](http://img.homeworklib.com/questions/ade4f6e0-6e57-11ea-91e0-f13ccff7a746.png?x-oss-process=image/resize,w_560)
IS curved shows all combinations of income (Y) and real interest rate (r), for which the goods market is in equilibrium. LM curve shows all combinations of income and real interest rate, for which the monkey market is in equilibrium. Aggregate demand is the monetary value of all final goods and services produced within the boundaries of a nation. It includes consumption spending, investment spending, government spending, and net exports. The following information is given: C = 200 + 0.8(Y - T) - 500r I = 200 - 500r M^d/P = 0.5 Y - 250(r + Pi^e) Pi^e = 0.10 T = 20 + 0.25 Y (a) Derive the expression for IS function as follows: \r\n Y = C + I + G Y = [200 + 0.8(Y - T) - 500r] + [200 - 500r] + G Y = [200 + 0.8(Y - 20 - 0.25Y) - 500r] + [200 - 500r] + G Y = 200 + 0.8 Y - 16 - 0.2 Y - 500r + 200 - 500r
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