Question#1: What will be the effect of following events on the IS and LMcurve? A

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Question#1: What will be the effect of following events on the IS and LMcurve? A. A decrease in money demand caused by the introduction of anew electronic money card B. A decrease in the money supply C. An increase in government taxes
Question#2: (A)In the Keynesian cross, assume that the consumptionfunction is given by: C = 100 + 0.5 (Y-T) If planned investment = 100 Government purchases and taxes are both 50 Then calculate the equilibrium level of income. (B) Suppose that money demand function is: (M/P)d = 1000 – 100r Where r is the interest rate in percentage, money supply (M)is 1000 and the price level (P) is 2. What is the equilibrium interestrate?
Question#1: What will be the effect of following events on the IS and LMcurve? A. A decrease in money demand caused by the introduction of anew electronic money card B. A decrease in the money supply C. An increase in government taxes
Question#2: (A)In the Keynesian cross, assume that the consumptionfunction is given by: C = 100 + 0.5 (Y-T) If planned investment = 100 Government purchases and taxes are both 50 Then calculate the equilibrium level of income. (B) Suppose that money demand function is: (M/P)d = 1000 – 100r Where r is the interest rate in percentage, money supply (M)is 1000 and the price level (P) is 2. What is the equilibrium interestrate?

Explanation / Answer

M/P=1000-100r
M=1000 & P=2
1000/2 = 1000-100r
500=1000-100r
100r=500
r=500/100=5

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