Explore BrainMass
Share

Explore BrainMass

    Algebraic manipulation of IS-LM model

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Consider the following IS-LM model:
    Goods Market C=200 +.25Yd I=150 +.25Y-1000r
    G=250
    T=200
    Money Market Md=2Y-8000r Ms=1600
    a. Derive the IS Relation. (You want an equation with Y on the left side and all else on the right.)
    b. Derive LM relation. (It will be convenient for later purposes to have r on the left side, and all else on the right.)
    Solve the system for equilibrium real output. (Substitute the expressions for the interest rate(r)given by the LM relation into the IS equation and solve for equilibrium output (Y).)

    © BrainMass Inc. brainmass.com October 9, 2019, 6:25 pm ad1c9bdddf
    https://brainmass.com/economics/general-equilibrium/algebraic-manipulation-is-lm-model-87622

    Solution Preview

    a. Because we plot interest rates on the vertical axis, we derive the IS function in terms of the familiar equation-of-a-line formula, y = b + mx.
    If Y = C + I+ G
    Where C = 200+.25Yd and Yd = Y-T
    We know that T=200, ...

    Solution Summary

    Algebraic manipulation of IS-LM model to obtain the the IS and LM relations is provided.

    $2.19