Assignment
1. Using the IS/LM model, AD/AS, the Asset Market:
Goods Market: Money Market:
C=250 + 1/2(Y-T) M/P=450
I=150-500r L(r,y)=.5y-500r
G=100 Long-Term Inflation: 3%
T=100 Natural Rate of Unemployment: 4%
a. What are the IS and LM equations if the price level is 100?
b. Calculate and show the equilibrium output and interest rates?
c. Considering a Keynesian Model, show graphically what happens to P, Y, and r in the SR when the Federal Reserve conducts an open market sale of 4500.
d. What is the short run Y and r?
e. Suppose instead the government conducts a balanced budget expansion of 120 units. Redo d and e.