Business, 27.08.2019 21:10 QueenThao8933

In this question we will adjust the is-lm curve seen in class slightly. in particular, we will assume that taxes are taken as a percentage of income rather than as a lump sum. then we have c = a + b(1 − τ )y where τ is the percentage (between 0 and 1) of income the government collects in taxes (so that 1 − τ is left to the consumer). assume that investment is a linear function of the interest rate i = e − fr and government spending is fixed at g = g¯ a. derive the is curve (solve for r as a function of y and parameters) b. which parameters affect the slope of the is curve and which affect the intercept? now let: a = 500, b = 0.8, τ = 0.25, e = 5000, f = 300, g¯ = 2500 c. what is the is curve with these numbers? d. what is output if the interest rate is 10%? what if it is 5%? 15%? assume money demand is given by: md p = 2y − 1000r and that the price level is fixed at p = 1 and the money supply at ms = 10, 000

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In this question we will adjust the is-lm curve seen in class slightly. in particular, we will assum...

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