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Suppose that a hypothetical economy is characterized by the following equations: C = 200 + 0.75(Y-T) I =...

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Economics

Suppose that a hypothetical economy is characterized by thefollowing equations:

C = 200 + 0.75(Y-T)

I = 200 – 25r

G = 100

T = 100

MS = 1,000

P = 2

(M/P)d = Y – 100r

  1. Use the above information to obtain an expression for the IScurve (write Y as a function of the interest rate).
    1. mathematical procedure

  1. Explanation
  1. Assuming that P is fixed at 2, obtain an expression for the LMcurve (again, write Y as a function of r).
    1. mathematical procedure
  1. explanation

  1. Find the equilibrium level of Y and r.
    1. mathematical Procedure

  1. explanation

  1. Suppose that the government increases G to 150. By how much theIS curve will shift? What are the new levels of Y and r?
    1. mathematical procedure

  1. explanation
  1. Suppose that after the increase in G, the BelizeCentral Bank raises the money supply to 1,200. What arethe new equilibrium values of r and Y?
    1. Mathematical Procedure

  1. explanation

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