A) What is the equation of the IS curve? B) What is the equation of the LM curve

Question

A) What is the equation of the IS curve?

B) What is the equation of the LM curve?

C) What is the equilibrium interest rate (r)?

D) What is the equilibrium real output (Y)?

E) Use the IS and LM Equations to derive a relation between real output Y and the price level P.

Answer all parts and snow your work. Consider an economy represented by the following equations: a = 300 - 3r. I = 100 - r, G = 100, T = 100 C = a + .5(Y-T) (M/P)d = 0.5Y - 2r. Ms= 6300. P=15 where G represents level of government expenditure, T. represents level of taxes, r, represents the level of interest rates . C represents the level of consumption, Y represents the level of income. I is the level of investment spending. M is money . P is the price level . r is interest rate and a is a parameter.

Explanation / Answer

I can help you out with 4 parts of your question.!!

A)IS Curve:

Y=C+I+G

Y=a+0.5(Y-T)+100-r+100

IS CURVE=a+0.5(Y-T)+200-r

IS Curve=300-3r+0.5(Y-100)+200-r

IS Curve=500-4r-0.5Y-50=450-4r-0.5Y-----------(1)

B)LM CURVE:

MS=Md

0.5Y-2r=6300

LM Curve= 0.5Y-2r-6300

C)Equilibrium interest rate:

IS=LM

450-4r+0.5Y=0.5Y-2r-6300

r=3.375%

D)Equilibrium output rate:Substitute value of r in equation (1)

=899.7

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