Purchase Solution

equilibrium interest rate

Not what you're looking for?

Ask Custom Question

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.

Purchase this Solution

Solution Summary

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

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 + ...

Purchase this Solution


Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.