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the equilibrium interest rate

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Using a figure similar to Figure 14-11, explain how the money market and the loanable funds market react to a reduction in the supply in the short-run.

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In the attached diagram, both the money market and the loanable funds market are initially in equilibrium at the same rate of interest, r1. A decrease in the money supply shifts the ...

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The equilibrium interest rate is assessed.

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Determining equilibrium interest rate

IS/LM Homework

The economy of Econoville consists of two markets as follows:

Product Market

C = 2.0 + 0.70 Yd
I = 3.0 + 0.12 Y - 0.20(r) %
Yd = Y - T
Y = C + I + G
G = 12
T = 10

Money Market

MS = 12.0
MD = 4.0 + 0.20Y - 0.4(r) %
MD = MS

Part a

Derive the IS curve for Econoville

Part b

Derive the LM curve for Econoville

Part c

What is the equilibrium interest rate (r) and equilibrium level of income?

Attached are the definitions of LM and IS.

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