answerstoquiz4spring2007

answerstoquiz4spring2007 - Economics 302 Answers to Quiz #4...

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Economics 302 Name ______________________________ Answers to Quiz #4 Section Number ______________________ 5/3/07 Student ID Number ___________________ You are given the following information about a closed economy. Y = C + S + T Y = E in equilibrium C = a + b(Y – T) = 320 + .5(Y – T) r = 10 – (0.1)I G = 100 M S = nominal money supply = 400 (M/P) D = demand for real money balances is expressed by the following equation: r = (.1)Y – 72 – (.01)(M/P) D P = 1 initially T = (.2)Y 1. Using the above information, derive the IS equation for this economy. In your derivation indicate your reasoning: i.e., what underlies this equation? a. (.25 points) Explanation underlying your derivation of the IS curve: The IS equation expresses all the Y, r combinations that depict goods market equilibria where production equals expenditure. b. (.25 points) Derivation of the IS curve: Y = E in equilibrium Y = C + I + G Y = 320 + .5(Y – T) + 100 -10r + 100 Y = 520 + .5(Y - .2Y) – 10r Y = 520 + .4Y – 10r
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answerstoquiz4spring2007 - Economics 302 Answers to Quiz #4...

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