Question

2. Assume in a hypothetical economy Aggregate expenditure (AE) = 1270 +0.8Yd – 20i and the additional information is given below.
Transfer Payment is 300 billion, Income tax rate is 25%, Lump sum tax is 150 billion, money demand is Md= 0.3Y – 50i and real money supply is 60 billion
a. Calculate IS and LM functions (3.5 Marks)
b. Calculate equilibrium rate of national income and the interest rate.(3.5 Marks)
c. If the Central Bank employ the expansionary Monetary policy by increasing the real money supply by 10 billion calculate the new national income and interest rate

Answer 1

Explanation:

If the Central Bank employ the expansionary Monetary policy by increasing the real money supply by 10 billion calculate the new national income and interest rate