Please show graphs. A closed (i.e., no exports or imports) Keynesian economy with fixed prices...
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Accounting
Please show graphs.
A closed (i.e., no exports or imports) Keynesian economy with fixed prices is described by Consumption Function: C = a + b(Y T)
Investment Function: I = c dr
Real Money Demand Function: M/P = eY - fr
Taxes = T = Exogenous and Fixed.
Government Expenditure = G =Exogenous and Fixed.
Price level = P = Exogenous and Fixed.
In this model, a, b, c, d, e, f are parameters. Typically, a, b, c, d, e and f will be numbers in an example.
A. Derive the IS equation in terms of the parameters and the exogenous variables and draw an approximate shape of the IS equation. Identify the slope in terms of the parameters above.
B. Derive the LM equation in terms of the parameters and the exogenous variables and draw an approximate shape of the LM equation. Identify the slope in terms of the parameters above.
C. Graphically demonstrate how the IS curve shifts as government expenditure rises.
D. Graphically demonstrate how the LM curve shifts as money supply rises.
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