Consider the following numerical version of the IS-LM model in a closed economy:
C-400+0.5Yd; I=700-4000r+0.1Y; G=200; Tp=200; Yd=Y-Tp, RLMD=.5Y-7500r; RLMS=500; X=M
Find the equations for the IS Curve and LM Curve
Please show each step, thank you.© BrainMass Inc. brainmass.com October 9, 2019, 10:25 pm ad1c9bdddf
See attachment for solution.
? Let the interest rate increase from r1 to r2 reduce planned investment from I(r1) to I(r2).
? This decrease in investment causes the planned expenditure function to shift down.
? So Y decreases from
Y1 to Y2.
? The IS curve maps out this relationship between the interest rate, r, and ...
Given data on the goods market and the money market I show how these markets are used to construct the IS/LM model. I provide and graphical example and solve the solution algebraically as well.