Unformatted text preview: Here, C = C(YT) = 200 + 0.25 (YT) and I = 200 – 25 r. Now we can proceed to solve the problem. Y = C + I + G Y = 200 + 0.75 (YT) + 200 – 25 r + 100 Y = 200 + 0.75 Y – 0.75 T + 200 – 25 r + 100 Y = 200 + 0.75 Y – 0.75 (100) + 200 – 25 r + 100 Y = 425 + 0.25 Y – 25 r Y – 0.75 Y = 425 – 25 r 0.25 Y = 425 – 25 r Y = [1/0.25] [425 – 25 r] Y = [4] [425 – 25 r] Y = 1700 – 100 r {IS Curve} Now you can proceed to graph this function for values of r from 0 to 8....
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 Spring '09
 Smith
 Macroeconomics, Following, Liquidity preference, IS/LM model, Derive ISLM function

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