These are some additional (and entirely optional) goods market problems prompted by questionsfrom class. The first explains why the IS curve has that name while the second studies the(demand-side) effects of a cut in the tax rate. The third studies a “balanced-budget” rise ingovernment spending. I've posted my solutions on Bb.1. Consider the goods market portion of our model of aggregate demand. We have the followingequations describing the spending behavior of the economyGœ+,Ð]XÑXœX >]EMœMÐ<ÑKœKRecall that (desired national) saving is and show that the goods marketWœ]GKequilibrium condition, implies that there is a negative relationship between the WœMÐ<ß]Ñpairs that clear the goods market. Show further that this approach gives the same equation forthe IS curve as we found in class.2. Recall our expression for the IS curve when , viz., .MÐ<Ñ œ D .<] œ+,X D.<K",Ð">ÑE
This is the end of the preview. Sign up
access the rest of the document.
This note was uploaded on 04/26/2010 for the course ECON 101 taught by Professor Staff during the Spring '08 term at Vassar.