IS / LM Analysis

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A macroeconomic model of Econoland can be summarized as follows:

C = 100 + 0.5(Y - T)
I = 0.25 Y - 500(r)
G0 = 300
T0 = 100
X0 = 200
M0 = 200
M D = 10Y - 20,000(r)
M S0 = 200

Part a - Derive the equation for the IS Schedule
Part b - Derive the equation for the LM Schedule
Part c - Calculate the equilibrium interest rate (r)
Part d - Calculate the equilibrium level of income (Y)

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Solution Preview

Part a - Derive the equation for the IS Schedule
The IS Equation
Y = C + I + G + (X - M)
Y = 100 + 0.5(Y - 100) + 0.25 Y - 500(r) + 300 + (200 - 200)
Y = 350 + 0.75Y - 500(r)
0.25 Y = ...

Solution Summary

IS / LM Analysis is achieved.

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