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    equilibrium interest rate

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    IS/LM Homework

    The economy of Econoville consists of two markets as follows:

    Product Market

    C = 2.0 + 0.70 Yd
    I = 3.0 + 0.12 Y - 0.20(r) %
    Yd = Y - T
    Y = C + I + G
    G = 12
    T = 10

    Money Market

    MS = 12.0
    MD = 4.0 + 0.20Y - 0.4(r) %
    MD = MS

    Part a

    Derive the IS curve for Econoville

    Part b

    Derive the LM curve for Econoville

    Part c

    What is the equilibrium interest rate (r) and equilibrium level of income?

    Attached are the definitions of LM and IS.

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    https://brainmass.com/economics/bonds/determining-equilibrium-interest-rate-16177

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    Solution Preview

    Part a
    Derive the IS curve for Econoville

    The IS Equation

    Y = C + I + G + (X - M)
    Y = [2.0+0.70(Y-T )] + [3.0 + 0.12 Y - 0.20(r)] + [12] + 0
    Y = [2.0+0.70(Y-10)] + [3.0 + ...

    Solution Summary

    This solution determines the equilibrium interest rate (r) and equilibrium level of income.

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