SUPPOSE THAT C = 60 + 0.8 Yd, I = 150-10r, G= 250, T = 200, Ms = 100, Md = 40 + 0.1Y - 10r
Question 1.
a. Write the equations for the IS and LM schedules.
b. Find the equilibrium values for income (Yo) and the interest rate (Ro)
Question 2. suppose we change the model in problem 1 such that investment is assumed to be completely interest inelastic: investment does not depend on the rate of interest and we have I = 150.
A. Write the new equations for the IS and IM schedules. Show the schedules graphically.
B. Find the new equilibrium values for income and the interest rate.