1) Consider the following IS–LM model: C = 200 + .25YD, I=150+ .25Y - 1000i G = 250, T = 200 , NX = 0, (M/P)d = 2Y - 8000i , M/P = 1600. a) Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G. b) Now suppose that the money supply increases to M/P =1,840. Solve for Y, į, c, and T, and describe in words the effects of an expansionary monetary policy. c) Set M/P equal to its initial value of 1,600. Now suppose that government spending increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, į, C. d) The expansionary fiscal policy in part (c) have resulted in large budget deficit (T – G = 200 – 400 = -200). Suggest a policy mix to decrease fiscal deficit to achieve a balanced budget (T – G = 0).
1) Consider the following IS–LM model: C = 200 + .25YD, I=150+ .25Y - 1000i G = 250, T = 200 , NX = 0, (M/P)d = 2Y - 8000i , M/P = 1600. a) Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G. b) Now suppose that the money supply increases to M/P =1,840. Solve for Y, į, c, and T, and describe in words the effects of an expansionary monetary policy. c) Set M/P equal to its initial value of 1,600. Now suppose that government spending increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, į, C. d) The expansionary fiscal policy in part (c) have resulted in large budget deficit (T – G = 200 – 400 = -200). Suggest a policy mix to decrease fiscal deficit to achieve a balanced budget (T – G = 0).
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter4: Estimating Demand
Section: Chapter Questions
Problem 6E
Related questions
Question
7.2
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning