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Unformatted text preview: DI = (1-t)Y, disposable income is income after taxes have been paid t = (1/5), the tax rate is one-fifth G = 500, government spending is 500. I = 1000 - 15 i , investment spending declines as the rate of interest increases. (X M) = -300, net exports is a negative 300. (a) Use the above information to obtain an expression for total expenditure. (Hint: I get E = 2000 + (3/5)Y 15 i .) (b) Setting total expenditure equal to output, and solve the equation to get an expression for the IS curve. (c) What would the new expression for the IS curve be if the tax rate is increased from one-fifth to one-fourth? Does the new IS curve lie to the right or to the left of the original one? Which IS curve has the steeper slope? Page 1 of 1 Untitled Document 8/9/2007 file://C:\Documents and Settings\smorgan1\My Documents\She's stuff\Math100 - Dr. Wu\S. .....
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- Spring '09