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# fiscal policy

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Given the following equations:
C=500 +0.8(1-.025y)
I = 900-50r
G=800
T = 100
X = 350
M = 150+0.15y

M/P = 500
L = .25y-62.5r

Find

a)AE equation
b) IS curve
c) LM curve
d) equilibirum Y
e)gov't budget
f) what happens if g rises to 900?
g)what is there is an increase in the supply of money?

Please note answers include full step by step instructions, with easy to understand analysis.

https://brainmass.com/economics/fiscal-policy/fiscal-policy-102163

#### Solution Preview

first solve for AE.

We need to know which constants are subtracted from the equation:
= taxes become negative, and so does imports

The system of equations now becomes:
C=800+0.6y
I = 900-50r
G=800
T = - 100
X = 350
M = -150-0.15y (make sure to subtract both parts of the equation)

So all you do is add all the constants and you get:
AE=2300 +0.45y -050r

Now from here we can get the IS curve:

we set AE= Y
Y = 2300 +0.45y -050r

group all common terms together
y-0.45y=2300-50r
0.55y=2300-50r
solving for y we get:
y=4181.82-91r

What does this mean? IS is the equilibrium equation for the goods market. Every time r increase by 1%, y should increase by 91 units.

Now how go we get the LM curve?

We take the demand for money and ...

#### Solution Summary

Calculate equilibrium Y in this case.

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