Purchase Solution

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

Not what you're looking for?

Ask Custom Question

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).

Attachments
Purchase this Solution
Solution Summary

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

Solution Preview

Answer:
(a) We have,

Where,

And,

Adding all we have,

Or,
...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
Recent Feedback
  • "I've posted a similar question for another course. It's post 657940, and it's a practice problem that I'd like to use for the final exam. Your help will be greatly appreciated. "
  • "thank you!"
  • "Thank you again Jayant. You are super fast. "
  • "Thank you Jayant. You are appreciated. "
  • "Again, thank you Jayant. You are wonderful. "
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

View More Free Quizzes
Related BrainMass Solutions

  • effects of monetary and fiscal policy

    This is not the end of the story because the increased income increases (transactions) money demand, and this increases the interest rate. The economy eventually settles down at a new simultaneous equilibrium.

  • Derivation of IS and LM equations

    (Hint: Write the goods market equilibrium condition and solve for r in terms of Y and other variables.) What are the general equilibrium values of the real interest rate, consumption, and investment?

  • Economy Market

    The market for goods and services and the relevant variables in the market. 2. The money market and the relevant variables in the market. 3. The foreign exchange market and the relevant variables in the market. 4.

  • Global Finance Currency Questions

    How do catastrophic world events affect the foreign exchange and derivative markets? 2. What are international parity conditions? What are some examples of international parity conditions? How do these conditions impact global business? 3.

  • How does an increase in both supply and demand affect equilibrium price and quanitity?

    480986 supply and demand affect equilibrium price and quantity Assume that the market for radios is perfectly competitive and there is a simultaneous increase in supply and demand.

  • Macroecomics Questions

    Use the IS-LM model to show that in an economy which is subject to shock in the money market (for instance, autonomous changes in demand for money) fiscal policies could not be used to stabilize real output without exacerbating the fluctuations of

  • IS-LM-BP model of an open economy

    What are the initial effects of this monetary policy on the goods market, the money market, the foreign exchange market and the balance of payments of the domestic economy? Which curve(s) will shift? ii.

  • Fundamentals of economics

    source: http://ingrimayne.saintjoe.edu/econ/TheFirm/CircularFlow.html Market Equilibrium: Markets exist in all types of goods and services, and as economists, we are interested in how they work and what causes them to change.

  • expected rate of depreciation of the domestic currency

    From this equilibrium point, what happens if we rise Y but leave i constant? It's clear the the money demand will rise. Since the money supply is fixed, this would be a disequilibrium in the money market.

View More Related Solutions