Answer Happy

00-100k R The IS-LM Model I Exercise 1. The IS-LM model is considered. Autonomous consumption equals 100, autonomous investment equals 100, government spending equals 100, marginal propensity to consume equals 0.9, income tax rate equals 0.1, investment sensitivity parameter equals 10, autonomous speculative demand equals 200, speculative demand sensitivity parameter equals 4, transactions demand sensitivity parameter equals 1, precautionary demand equals 200, nominal money supply equals 500 and general level of prices equals 1. Using these values solve following problems: a) Find IS curve and interpret its slope b) Derive IS curve graphically c) Find LM curve and interpret its slope d) Derive LM curve graphically e) Find equilibrium income and equilibrium interest rate f) Present IS-LM model graphically and show how fiscal contraction affects economy.