Answer Happy

QUESTION THREE Assume the following equations pertain to the economy of Biadan man:: Y= 1250 - 50r r=(1/30)Y-15 C=100+0.8Yd T=50+0.25Y L'=(1/3)Y-1000 (a) (b) (c) Derive and interpret the slopes of the IS and LM curves above. Is the IS curve flatter than the LM curve? Explain. Find the equilibrium levels of income (Y.*) and the interest rate (). Assume an 800 unit increase in government spending is financed by a 500 unit increase in taxes and a 300 unit increase in money supply: i) By how much and in which direction will the IS curve shift? What is equation for the new IS curve? ii) By how much and in which direction will the LM curve shift? What is equation for the new LM curve? (d) (e) Use the original LM equation and your IS in part Ci) above to determine the new equilibrium values of income and interest rate (Y, 11). With the help of an IS-LM diagram explain why income and interest rate changed the way they did in this part. Use the original IS curve and your LM in part c(ii) above to determine the new equilibrium values of income and interest rate (Y2, 12). With the help of an IS-LM diagrams explain why income and interest rate changed the way they did in this part. Use your IS and LM curves in parts c(i) and c(ii) above to determine the new equilibrium values of income and interest rate (Y3, 13). With the help of an IS-LM diagrams explain why income and interest rate changed the way they did in this part. (f)