11. The following equations describe an economy. (Think of C, I, G, etc., as being measured in billions and R, the inter

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11 The Following Equations Describe An Economy Think Of C I G Etc As Being Measured In Billions And R The Inter 1 (32.47 KiB) Viewed 21 times

11. The following equations describe an economy. (Think of C, I, G, etc., as being measured in billions and R, the interest rate, as a percentage; a 5 percentage interest rate implies R-5.) C=0.8(1-0)Y 1=0.25 1-900-50R G-800 MR-0.25Y-62.5R M/P=500 a) What is the general definition of the IS curve? b) What is the equation that describes the IS curve? c) What is the general definition of the LM curve? d) What is the equation that describes the LM curve? e) What are the equilibrium levels of income and the interest rate? f) What is the value of the simple multiplier (with taxes)? g) By how much does an increase in government spending of AG = 150 increase the level of income in this model, which includes the money market? Use the fiscal policy multiplier. h) By how much does a change in government spending of AG 150 affect the equilibrium interest rate? i) Explain the difference between your answers to parts (f) and (g).