1. Desired consumption and investment are

C^d = 4000 – 4000r +0.20 Y;

I^d = 2400 – 4000r.

As usual, Y is output and r is the real interest rate. Government purchases, G, are 2000.

a) Find an equation relating desired national saving, S^d, to r and Y.

Don't use plagiarized sources. Get Your Custom Essay on

Derivation of IS and LM equations

From $10/Page

b) What value of the real interest rate clears the goods market when Y = 10,000? Use both forms of the goods market equilibrium condition. What value of the real interest rate clears the goods market when Y = 10,200? Graph the IS curve.

c) Government purchases rise to 2400. How does this increase change the equation for national saving in part (a)? What value of the real interest rate clears the goods market when Y = 10,000? Use both forms of the goods market equilibrium condition. How is the IS curve affected by the increase in G?

2. In a particular economy the real money demand function is

M^d / P = 3000 + 0.1Y – 10,000i.

Assume that M = 6000, P = 2.0, and π^e = 0.02.

a) What is the real interest rate, r, that clears the asset market when Y = 8000? When Y =9000? Graph the LM curve.

b) Repent part (a) for M = 6600. How does the LM curve in this case compare with the LM curve in part (a)?

c) Use M = 6000 again and repeat part (a) for π^e = 0.03. Compare the LM curve in this case with the one in part (a).

3. An economy has full-employment output of 1000. Desired consumption and desired investment are

C^d = 200 + 0.8(Y – T) – 500r;

I^d = 200 – 500r.

Government purchases are 196, and taxes are T = 20 + 0.25Y.

Money demand is M^d / P = 0.5Y – 250(r + π^e), where the expected rate of inflation, π^e, is 0.10. The nominal supply of money M = 9890.

a) What are the general equilibrium values of the real interest rate, price level, consumption, and investment?

b) Suppose that government purchases are increased to G = 216. What are the new general equilibrium values of the real interest rate, the price level, consumption, and investment?

4. The production function in an economy is

Y = A(5N – 0.0025N^2),

where A is productivity. With this production function, the marginal product of labor is

MPN = 5A – 0.005AN.

Suppose that A = 2. The labor supply curve is

NS = 55 + 10(1 – t)w,

where NS is the amount of labor supplied, w is the real wage, and t is the tax rate on wage income, which is 0.5.

Desired consumption and investment are

C^d = 300 + 0.8(Y – T) – 200r;

I^d = 258.5 – 250r.

Taxes and government purchases are

T = 20 + 0.5Y;

G = 50.

Money demand is

M^d / P = 0.5Y – 250(r + π^e)

The expected rate of inflation, π^e, is 0.02, and the nominal money supply M is 9150.

a) What are the general equilibrium levels of the real wage, employment, and output?

b) For any level of output, Y, find an equation that gives the real interest rate, r, that clears the goods market; this equation describes the IS curve. (Hint: Write the goods market equilibrium condition and solve for r in terms of Y and other variables.) What are the general equilibrium values of the real interest rate, consumption, and investment?

c) For any level of output, Y, find an equation that gives the real interest rate that clears the asset market; this equation describes the LM curve. [Hint: As in part (b), write the appropriate equilibrium condition and solve for r in terms of Y and other variables.] What is the general equilibrium value of the price level?

d) Suppose that government purchases increase to G = 72.5. Now what are the general equilibrium values of the real wage, employment, output, the real interest rate, consumption, investment, and price level?

5. Consider the following economy:

Desired consumption C^d = 1275 + 0.5(Y – T) – 200r.

Desired investment I^d = 900 – 200r.

Real money demand L = 0.5Y – 200i.

Full-employment output Y = 4600.

Expected inflation π^e = 0.

a) Suppose that T = G = 450 and that M = 9000. Find an equation describing the IS curve. (Hint: Set desired national saving and desired investment equal, and solve for the relationship between r and Y.) Find an equation describing the LM curve. (Hint: Set real money supply and real money demand equal, and again solve for the relationship between r and Y, given P.) Finally,, find the equation for the aggregate demand curve. (Hint: use the IS and LM equations to find a relationship between Y and P.) What are the equilibrium values of output, consumption, investment, the real interest rate, and price level?

b) Suppose that T = G = 450 and that M = 4500. What is the equation for the aggregate demand curve now? What are the equilibrium values of output, consumption, investment, the real interest rate, and price level? Assume that full-employment output Y is fixed.

c) Repeat part (b) for T =G = 330 and M = 9000.

Solution Summary

Derivation of IS and LM equations

To continue with the answer check on mycoursewriter.com/

Why Choose Us

Quality Homework Writing

Do you need to ace your test? We have qualified writers to assist you in writing 100% quality homework writing. Mycoursewriter offers students unique and personalized custom papers that help them in getting good grades. Our academic experts will assist you with your dissertation papers, thesis writing, research papers, term papers, and case study homework help. Our writers are experienced and have perfected the art of crafting the best essay writing papers regardless of your academic level. Order now and get our superb homework writing services.

Expert Academic Writers

A student needs professional assistance outside class time. Before hiring our writers, they undergo thorough tests and strict educational backgrounds. After passing a test, our writers undergo training to ensure they deliver expert professional papers to our customers. We ensure they meet the timely delivery of papers and follow our customers' provided instructions. Every writer is an ENL writer and is from the USA, Canada, UK, or Australia. Our experts approach papers effectively depending on their area of specialization.

Affordable Price Guarantees

Is the deal too good to be true? Mycoursewriter is the most affordable assignment help website on the market. We consider students' daily needs for academic help. Our paper costs are reasonably priced to approximately 90% of students around the globe. Our main aim is to ensure students achieve academic excellence, and we believe inconsiderable prices should not hinder students from getting quality homework writing help. In case of any dissatisfaction, we offer unlimited revisions and rewrites without extra charges.

Timely delivery of papers

Tight deadline? Is your paper due in the next few hours? Worry no more. Our writers are here for your rescue. Many college students find it hard to balance their social and academic life and get caught up with academic deadlines. Drafting your paper at the last minute does not allow you to conduct extensive research and craft the correct answers. We have expert writers ready to work on your assignment writing. Urgent writing services are the ultimate solutions you need. We guarantee you timely delivery of papers at your convenience and specified time delivery of the customer.

100% Original Tasks

The ultimate deal-breaker in achieving good grades is submitting imitative papers. Plagiarism is a breach of examination standards and has serious consequences. Students need to deliver papers written in their understanding by paraphrasing their research findings and relevant citations. Our expert's primary consideration is providing free plagiarized papers that meet the lecturers' requirements. Our editors will proofread your paper before delivery ad ensure your papers will not be substandard. We guarantee extreme originality, and in case of any customer concerns, we offer a plagiarism report.

All Round the clock Customer Support

Our website is user-friendly and super useful! Mycoursewriter is the most trusted online writing website always available to provide you with assignment writing services that you need. Our primary concern is meeting customer need specifications by our friendly customer support team that Is available all the time. Our website usability is self-learnable but in case of any problem, feel free to contact us directly through our website email: support@mycourserwiter.com. We have diligently satisfied thousands of students, and you can witness this on our sites' review page.

Try it now!

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Advantages of Using Our Assignment writing Services

Mycoursewriter welcomes you for superb essay writing services. We are a legit site offering help with your most challenging homework writing assignments at affordable prices. Your essay paper will be assigned to a professional writer who will craft the paper from scratch according to your provided instructions.

Essays

Essay writing is a common assignment writing for most college students. It takes a lot of time to craft a complete perfect essay. Mycourserwiter offers the best essay writing and proofreading services for most college students. Your paper is assigned to an expert writer who does thorough research on fresh ideas and personalizes your essay paper according to your assignment writing guidelines. Our essays are entirely exceptional and undergo a strict procedure that includes papers free from plagiarism and thorough proofreading.

Admissions

Admission and Business Papers

Writing an admission paper is not every student's desire, and this should not hinder any student from earning an admission. Writing a perfect personal statement to earn a position in a dream school or job can be stressful. Personal statements should display a high level of confidence and uniqueness. Admission essays require you to have a vast knowledge of the current happenings in the world and knowhow of the business world. We have qualified writers with skills who will write your admission paper through comprehensive research. All you have to do is provide us with little details about yourself, instructions and our writers will craft a perfect paper for you.

Editing

Editing and Proofreading

Mycoursewriter offers you assignment writing services free from grammatical and formatting mistakes. An error-free paper is significant in scoring the desired maximum grades. We have a team of editors who will go through your paper after our expert writers have delivered their fully crafted papers. Our writers will cover all the aspects of your paper instructions, such as fonts, spacing, and educational formats. Our team of editors will check through your paper to make sure it meets the formatting style provided in the paper instructions. Under no circumstances will a poorly formatted paper will be forwarded to you as our team of editors will ensure careful proofreading.

Coursework

Technical Papers

Assignment writing is part of a learning process, and one may not have the knowledge to answer all questions correctly. This should not be a stress to you as we have qualified essay writing experts to help you. Our qualified writers are holders of PhDs, Degrees, and Masters in different areas of study and can handle any papers regardless of the complexity. Multiple assignments may be challenging to finish on time. Our skilled professional writers are here to assist you in crafting all the correct answers for your assignment. Stop stressing about your homework writing and place an order with us, and our expert writers will provide you with the best assignment help.