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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?...
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- Spring '08