Consider the following economy: Desired consumption: Desired investment: Real money demand: Full-employment output: Expe

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Consider The Following Economy Desired Consumption Desired Investment Real Money Demand Full Employment Output Expe 1 (91.2 KiB) Viewed 16 times

Consider the following economy: Desired consumption: Desired investment: Real money demand: Full-employment output: Expected inflation: This is a classical model with no misperceptions about the price level. a. Suppose that T = G = 180 and that M = 7,250. The equation describing the IS curve is: IS: Y = 1380-2600r. The equation describing the LM curve is: (1) P LM: Y = 14500 cd= 250+ 0.60(Y-T)-530r d=230-510r L= 0.5Y-510/ Y = 1,090 π = 0. + 1020r. Using the IS and LM equations, the equation for the aggregate demand curve that shows the relationship between Y and P is: 3414 ( 7 ) AD: Y= 389 + 10414 In general equilibrium, output = 1,090, the price level = 14.85, the real interest rate = 11.15%, consumption = 736.9, and investment = 173.1. b. Suppose that the both government spending and taxes change to G = T = 200. What is the new equation for the AD curve? AD: Y = 0+0) Р Calculate the general-equilibrium values of output, the price level, the real interest rate, consumption, and investment. Output, Y = (Enter your response rounded to the nearest whole number.) Price, P = (Enter each response rounded to the nearest whole number.) (Enter your response rounded to two decimal places.) Real interest rate, r=% (Enter your response as a percentage rounded to two decimal places.)