Transform the following systems of linear equations into matrix forms. = b. IS-LM model: Closed economy i. Aggregate exp

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Transform The Following Systems Of Linear Equations Into Matrix Forms B Is Lm Model Closed Economy I Aggregate Exp 1 (185.91 KiB) Viewed 19 times

Transform the following systems of linear equations into matrix forms. = b. IS-LM model: Closed economy i. Aggregate expenditure: AE = C +1 + G Note: Exogenous government expenditure: G = Go ii. Consumption function: C = a + c(1 – t)y, where a > 0, and 0 <c,t<1 Note: C is consumption and Y is disposable income. a, c, and t are constants. c is the marginal propensity to consume and t is the tax rate. Hence, c and t are parameters. iii. Investment function: 1 = d - ei, where d, e > 0, and 0 < i < 1 Note: I is investment spending and i is interest rates. d and e are constants. iv. Money market: Money demand function: Mp = kY – li where k,1 > 0, and 0 <i<1 Exogenous money supply: Ms = M. At equilibrium: M= Ms Note: Y is disposable income and i is interest rates. Money supply is exogenous, assuming that the central bank determines its level. = = Hint: The variables in the matrix (i.e., at the equilibrium) are: Y*,C*,I*, and i*. The coefficient matrix will be 4 x 4.