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 ...
The equilibrium interest rate is assessed.
Determining equilibrium interest rate
The economy of Econoville consists of two markets as follows:
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
MS = 12.0
MD = 4.0 + 0.20Y - 0.4(r) %
MD = MS
Derive the IS curve for Econoville
Derive the LM curve for Econoville
What is the equilibrium interest rate (r) and equilibrium level of income?
Attached are the definitions of LM and IS.View Full Posting Details