No name Coursework Example | Topics and Well Written Essays - 1250 words

No name - Coursework Example2. (a) In a closed economy, IS slide is the interest rate at which the commodity market is at residue at a accustomed income level. This lavatory be express algebraically as Y = C + I + G, where Y is the equilibrium income is the level of consumption, I is the level of investment and G is the government expenditure. It is worth to note that consumption is a function of income bit investment is a function of interest rate and government expenditure is a function of tax. Using the equation given above, Y = C + I + G, but C = hundred + 0.4(Y T) and when this is substituted into the IS equation we obtain Y = cytosine + 0.4(Y T) + I + G, since I = 1000 + 0.1Y 20i which when replaced to the equation gives Y = 100 + 0.4(Y T) + 1000 + 0.1Y 20i + G,note that T= 300 finally the value of G = 100 which when replaced into the equation yield Y = 100 + 0.4(Y 300) + 1000 + 0.1Y 20i + 100. When this equation is simplified to give the IS thread we obtain 0.5 Y = 1080-20i and the IS curve get out be represented by the equation below Y = 2160 40i. ... IS-LM curve can be attained where in that location is equilibrium in the commodity market and money market. Using the IS and LM equations and combining them we obtain i= 50 and Y = 160.This means that equilibrium income Y=160 and equilibrium interest rate i=50. This can graphically be represented as I M i 50 L S 160 Y (b) When the G increases by 100, the IS-LM curve equilibrium Y = 170 while the i=55 and this represents an upward shift in the IS curve as shown below Io I1 i M 55 50 L S1 S0 160 170 Y (c) When the real money supply inflict by 200, the i=51 while Y=122 and this represents an upward shift in the LM curve as shown below. i I I M1 M0 51 50 L1 L0 S 122 160 Y (a)In an uncivil economy, IS curve can be derived by equating Y= C+I+G+X-M, this can be represented as Y = 100+0.8(1-t)Y + 700-50i+900+700-0.2Y In simple expression the IS curve will be Y=4000-83i. On the other hand the LM curve will be expressed algebraically as Money Demand equals Money Supply and using the data provided this will be 0.25Y 62.5i = 500. Hence Y= 2000+ 250i (b) The equilibrium income and interest rate in this case will be metric by equating IS to LM which will be 2000 + 250i =4000-83i and Y= 498 and i= 6. Hence the governments surplus compute will be (X)700- (IM)99 = 600. (c) The equilibrium income Y = 498 therefore, the government expenditure should be increased by 4602 (d)The deepen in balance of trade will be export less import which is 600 and this is also a government surplus. This employment is sustainable since there is an extra demand for labor to be absorbed in the export sector and this also means that the extra export creates more employment opportunity. (e) The full