This preview shows page 1. Sign up to view the full content.
Unformatted text preview: t 0.01 is 1%).
(d) Solve for equilibrium real output.
(e) Solve for the equilibrium values of C and I. Verify that your answer for Y is correct by adding C,
I and G together.
2. Use the IS and LM curves that you derived for Problem 1 to answer the following.
(a) Calculate the changes in Y and i if G increases by 400. Calculate the change in I. Explain the
effects of expansionary fiscal policy using your results to illustrate.
(b) Leave G equal to 2000 and let M/P rise by 2000 instead. Find the change in Y and i caused by
the increase in...
View Full Document