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Unformatted text preview: Solve for the equilibrium interest rate. (Hint: Substitute the value you obtained for Y in part (c) into
either the IS or LM equations and solve for i. If your algebra is correct, you should g et the same
answer from both equations.) (2 marks)
(e) Solve for equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and
G. (2 marks)
3 ECON 2123: Macroeconomics (f) Problem Set 2 Instructor: Yao Li Graph ISLM diagram of above with correct labels. (Hint: You need to correctly label the x and y
axis, and denote the value of the equilibrium Y and i.) (1 mark) (g) Now consider monetary expansion. Suppose money supply increases to (M/P)s = 1840. Solve for
equilibrium Y, i, C and I, and describe in words the effects of an expansionary monetary poli cy on
Y, i, C and I. (3 marks)
(h) Set M/P...
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 Fall '13

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