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    Compute new equilibrium and explain results on ISLM

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    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 ad1c9bdddf
    https://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.

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