Unformatted text preview: Which economy had the more effective policy? 2. Suppose that economy A is as given above but economy B is given by: C = 60 + 0.8( Y – T ) I = 150 – 10 r G = 250 T = 200 M s = 100 M d = 40 + 0.1 Y – 20 r a) Which country has the steeper LM curve? Why? b) Calculate equilibrium income and interest rate for each economy. (Again, you have A done already.) c) Suppose both countries try a monetary contraction, such that the money supply is decreased by 20 to a new value of 80. Calculate the new equilibrium income and interest rates for each economy. For which country is the monetary contraction more effective at decreasing income?...
View
Full Document
 Spring '08
 TedLochTemzelides
 Economics, Macroeconomics, Inflation, Interest Rates, Monetary Policy

Click to edit the document details