I have a new question which is at the end of the file you sent me. Can you answer it?
How can I show my work, and illustrate with IS/LM graph, to solve for the equilibrium interest rate (r*)
and output level (Y*) given the following:
C = 550 + 0.75(Y-T)
I = 300 ?10r
G = T = 200
(M/P)d
= Y ? 100r
(M/P)s
= 1000
Commodity Market
Y=C+I+G
Y= 550+0.75(Y-200)+(300-10r)+200
Y=550+O.75Y-150+300-10r+200
Y= 500+0.75Y-10r
Y-0.75Y=500-10r
0.25Y=500-10r
10r= 500-0.25Y
r=50-0.025Y
Money Market
(M/P)d=(M/P)s
Y-100r=1000
100r=y-1000
r=0.01Y-10
Equating and solving for Y:
50-0.025Y=0.01Y-10
0.035Y=60
Y=1714.29
But r=0.01Y-10
r=0.01(1714.29)-10
r=7.1429
r
LM (r=0.01Y-10
)
r0
IS (r=50-0.025Y)
)
YO
Y
If government spending increases by 100, what would be the new (r*) and Y*) combination? Show work
and illustrate IS/LM.