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    fiscal policy

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

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


    a)AE equation
    b) IS curve
    c) LM curve
    d) equilibirum Y
    d) trade balance
    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.

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    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:
    I = 900-50r
    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
    solving for y we get:

    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.