Yeah, so I found the text book answer to #a on Chegg. My question is how they ca

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Yeah, so I found the text book answer to #a on Chegg. My question is how they can up with Marginal Leakage. Marginal leakage is s(1-T)+T+NX
In the answer for the boom it says .15(1-.2)+.2+ NX
If T=200+.2y why did they only use .2 when it should be .2Y? And what happened to the 200? And where did they get .15 from?
UuF answer either tioIn to Fate. part d or e of prob- lem 1, explain how the Fed should change the real money supply in order to avoid a rise in the inflation rate. 5. Assume the following equations summarize the structure of an economy. C = Ca + 0.85(Y-T) Ca 260 10r T 200 + 0.2Y Ms/P = 2,125 kp 1,500-30r G = 1,700 NX = 500-0.08 (a) Compute the value of the multiplier (b) Derive the equation for the autonomous planned spending schedule, Ap (c) Derive the equation for the IS curve. (d) Calculate the-slope of the IS curve,ar/A. (Hint: Use the equation of the IS curve to compute AY/Ar. Then use the fact that the slope of the IS curve,ar/ Y, equals the inverse of Y/ r.) (e) Derive the equation for the LM curve. (f) Calculate the slope of the LM curve,/AY. (To do this use the same hint as in part d.) te (r)

Explanation / Answer

a)Multiplier shows the amount by which equilibrium output changes when autonomous part of aggregate demand increases by 1 unit. Therefore, multiplier= 1/ 1-mpc, here mpc= 0.85 which implies 1/1- 0.85 = 6.67

b)Autonomous planned spending = C+ I (planned)+G = 260- 10r +0.85(Y-200-0.2Y)+1500-30r +1700 = 3290-40r +0.68Y.

c) equation of IScurve

Y= AD implies Y= 3290-40r +0.68Y implies 0.32Y=3290- 40r implies 40r =3290- 0.32Y implies r = 82.25 - 0.008Y

d) IS curve slope is derivative of interest rate with respect to y which is -0.008

e)Equation of LM curve : money demand = money supply implies 0.25y-25r = 2125 implies r = - 2125/25 + 0.25/25Y = - 85 + 0.01Y

f) slope of LM is 0.01

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