# Compute new equilibrium and explain results on ISLM

Y = 1550 - 2400i = 600 + 3000i

950 = 5400i

i = 0.176

substitute into IS:

Y= 1550 - 2400*0.176 = 1127

Then substitute Y and i into C and I:

C= 300+.3(Y-T) = 300 + 0.3 * (1127 - 250) = 563.1

I= 250+.2Y-1200i = 250 + 0.2* 1127 - 1200 * 0.176 = 264.2

3. Then assume M/P rises to 1890 and solve for the new Y and i. hide problem

Now the LM becomes:

3Y-9000i =1890

3Y = 1890 + 9000i

Y = 630 + 3000i

Then the new equilibrium:

1550 - 2400i = 630 + 3000i

920 = 5400i

i= 0.17

substitute into IS:

Y= 1550 - 2400*0.17 = 1142

Given the above if the government raises taxes and expenditures by 50 compute what happens to Y and i

Describe in words what happens to the ISLM curves?

Explain the result

© BrainMass Inc. brainmass.com October 9, 2019, 8:24 pm ad1c9bdddfhttps://brainmass.com/economics/general-equilibrium/compute-new-equilibrium-and-explain-results-on-islm-149951

#### Solution Preview

For the new IS curve we need to calculate:

Y = C + I+ G

Where C =300+.3Yd

and Yd = Y-T

We know that T is now 300, so Yd = Y-300

Substitute into the equation for Y so that

Y = 300+.3(Y-300) + 250+.2Y-1200i +350

Now with some algebra you can get all ...

#### Solution Summary

The following posting helps with an equilibrium related problem, and provides explanations with ISLM curves.