# What are the simultaneous equilibrium conditions in the money and goods market?

2(a) Derive the expression for the IS schedule Y = C + I + G in the form i = f(Y), when C = 130 + 0.3Y, I = 100 - 35i, and G = 50.

(b) Calculate the interest rate when the equilibrium level of income is 100 and 300.

(c) Derive the expression for the LM schedule in the form i = f(Y), when the money demand function is Md = 680 + 0.8Y - 20i, and the money supply function is M^S = 880.

(d) Calculate the interest rate when the equilibrium level of income is $500.

(e) Graph the IS and LM curves on the same diagram, showing the intercepts and slope.

(h) Using Cramer's rule, find the level of income and the interest rate for which the money market and the goods market are simultaneously in equilibrium and show them in the diagram. (Answer: Y* = 300, i* = 2.0).

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#### Solution Preview

Answer:

(a) We have,

Where,

And,

Adding all we have,

Or,

...

#### Solution Summary

Cramer's rule is illustrated in this tutorial in an attached Word and Excel file.