Aggregate demand
An economy is as follows
Goods market:
slc=5
MPC=0.72. G0=20, T=18
Financial market:
= 18 − 200
Money market
/P= 0.02/(r-Y/5000)^2
M=40, P=2
In the long-term equilibrium before shocks and policies, the expenditure is Y=74 and P=2.
AThe government changes the tax to 1 = 20. That changes the IS and LM to
IS: = 102.1 − 714.3
LM: = + 0.0224P^0.5
Obtain the AD curve of the form =mP^0.5
BWhat is the key assumption about the short run? Find the short-run expenditure and output now that the tax has changed to 1 = 20.
CGraph the comparative statics (Draw before and after) of the short run equilibrium in terms of IS/LM and, on a separate graph, in terms of the AD curve. Label all axes, curves, and values.
An economy is as follows
Goods market:
slc=5
MPC=0.72. G0=20, T=18
Financial market:
= 18 − 200
Money market
/P= 0.02/(r-Y/5000)^2
M=40, P=2
In the long-term equilibrium before shocks and policies, the expenditure is Y=74 and P=2.
AThe government changes the tax to 1 = 20. That changes the IS and LM to
LM: = + 0.0224P^0.5
Obtain the AD curve of the form =mP^0.5
BWhat is the key assumption about the short run? Find the short-run expenditure and output now that the tax has changed to 1 = 20.
CGraph the comparative statics (Draw before and after) of the short run equilibrium in terms of IS/LM and, on a separate graph, in terms of the AD curve. Label all axes, curves, and values.