Consider the following economy: C=3,I=1.5,G =2.65,T=2,f=0.5,d = 0.1,mpc =0.8 A) Write the mathematical expression of the consumption function B) Write the mathematical expression of the investment function C) Find the IS curve and graph it. D. If r=10, what is the level of Y in equilibrium? E) Assume now that] = 1. Find the new IS curve. F) Which way did the curve shift and why?
1) Consider the following economy: E= 3, = 1.5:6 = 2.65, = 2,1 = 0.5, mpc = 0.8 A) Find the IS curve for d = 0.1 B) Find the IS curve for d = 0.2 C) Find the IS curve for d = 0.4 D) Graph all three curves in the same graph. E) What is the effect of a higher d on the IS curve? Explain.
2) Consider the following economy: The IS curve: Y = 16 - 2r The MP curve: r = 3+ 0.5pi Derive the AD curve.