Economics Homework Help

Suppose the economy is given by the following:

Consumption function: C= 26 + 0.6(Yd) Investment function: I= 23-50r Government spending: G = 10

Tax collections: T = 10 Exports schedule: X= 6- ϵ

Imports schedule: (IM) = 2 + 3ϵ Money supply: M = 492

Nominal Money demand L(Y)= 5Y-50r Price level=1

Labor supply=50 Production function=2N

QUESTIONS

a)Find the equation of the IS curve

b)Find the equation of the LM curve

c)Find the equation for the AD

d)Plot the IS and LM equations in terms of r and Y

e)Plot the IS and the LM equations in terms of ϵ

f)Find the equilibrium output and interest rate for this economy assuming a free floating exchange rate regime and a world interest rate r* of 0.16.

g)Suppose the government decides to increase G to 12. Compute the new short-run equilibrium levels of output, and exchange rates.

h)Graph and explain the adjustment of the economy to this shock