Unformatted text preview: Economics 100B
UCSC Professor K. Kletzer
Problem Set 2
Due at the beginning of lecture, Friday, October 17 1. Consider the following IS-LM model:
C = 1200 + 0.9 Yd
I = 0.2 Y – 20,000 i
G = 2000
T = (1/3) Y
(M/P)d = Y – 100,000 i
M/P = 6000
(a) Derive the equation for the IS curve (it will be easiest if you write this with Y on the left-hand
side and all else on the right-hand side).
(b) Derive the equation for the LM curve (again, put Y on the left-hand side).
(c) Solve for the equilibrium interest rate (note tha...
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