I need help with d) &e) (Assuming I got the other questions correct: Consider th

Question

I need help with d) &e) (Assuming I got the other questions correct:

Consider the following economy

Ca =   1800 ;   c = 0.8 ; T = 1200 + 0.20 Y; IP = 1800 ; G = 2000; NX = 600 – 0.08 Y.

a) What is the value of the autonomous Tax Ta ( Hint: see the formula and compare)

my answer - Ta = 1,200

b) Compute the value of the multiplier

my answer - mps = 1-c    1-.8 = .2 multiplier = 1/.2 multiplier = 5

c) Derive the equation of the autonomous spending

my answer - Ap = Ca - C*Ta+I+G+NXa

                    Ap = 1800 - .8(1200) + 1800 + 2000 + 600 = 5240

d) Find the equation of the IS curve

e) Compute the new IS curve when government spending increases by 100.What is the difference between the two IS curves?

Explanation / Answer

d) IS curve:

Y= C+I +G+NX

Y=1800+0.8(Y-1200-0.2Y) +1800 +2000+600 -0.08Y

There should be rate of interest also somewhere, only then can IS curve will be defined. IS curve is a inverse relation between Y and rate of interest.

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