please answer all questions, and show the work. Thank you 1. Recall the followin

Question

please answer all questions, and show the work. Thank you 1. Recall the following equations which describe an IS-LM economy: G-G,T=7, Now suppose we have an economy described by the following equations: C(Y-T)-50+0.9*(Y -T I(r) = 150-20"r G= 150, T = 150 Mr'= 75 + 0.5*Y-St Mr= 100 so b = 09, d = 20, e = 0.5, and f= 5. The IS and LM curves are thus: s: r= 10.75-0.01*Y LM: r=-5+0.1*Y a. Find equilibrium GDP. Round all decimals in all steps to the nearest hundredth. b. If government spending decreases by 50, but taxes stay the same, by how much does equilibrium GDP decrease? Use the following IS-LM government spending multiplier to answer this question IS-LM l-b+de

Explanation / Answer

a. Equilibrium GDp is established where IS and LM curves intersect each other.

IS r = 10.75-0.01Y

LM r = -5+0.1Y

10.75-0.01Y = -5 +0.1Y

0.11Y = 15.75

Y = 143.18

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