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A is autonomous expenditure b is the interest elasticity of

1. Assume that the price level is fixed (so that i = ir) and consider the following ISLM model

Y = α + (A , bi)

2.Assume that the price level is fixed (so that i = ir) and consider the following ISLM model

Y=α ×(A-bi)

I=1/b×y-M/P)

where

Α=1/1-(1-t)×mpc

A is autonomous expenditure, b is the interest elasticity of investment expenditure, k is the income elasticity of money demand, he is the interest elasticity of money demand, It is the tax rate, and mpc is the marginal propensity to consume.

a.Solve for the equilibrium level of income,Y0.

b.How does the equilibrium level of income depend on A and M/P ?

3.Continuing from the above problem,

a.What is the autonomous expenditure multiplier for this ISLM model?

b.What is the money multiplier?

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Solution Preview :

Prepared by a verified Expert

Macroeconomics: A is autonomous expenditure b is the interest elasticity of

Reference No:- TGS0660002

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Solution Preview :

Prepared by a verified Expert

Macroeconomics: A is autonomous expenditure b is the interest elasticity of

Reference No:- TGS0660002

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