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instruction.docxCh3
5. Given the following information, find the economy’s IS curve and graph it.
C = 150 + .75(Y – T) I = 200 – 40r G = T = 200
10. Given the following information, find the economy’s LM curve and graph it.
Ms = 130 and Md = 100 + .1Y – 10r 11.
11. Using the information in questions 5 and 10, find the economy’s equilibrium output and interest rate.
8. Verify that equilibrium output will be 800 (Y = 800) and the interest rate 5 percent (r = 5).
9. Suppose government spending increases by 65 (from 200 to 265) financed by running a budget deficit. What will happen to output and the interest rate?
10. Suppose the government raises taxes by 65. What happens to output and the interest rate? 11. Supposegovernmentspendingincreasesby65financedbyataxincreaseof65.Whathappenstooutput
and the interest rate?
12. Suppose the money supply increases by 65 (from 130 to 195). What happens to output and the interest rate?
13. Suppose government spending increases by 65 and this is financed by an equal increase in the money supply. What happens to output and the interest rate?
2. Using IS - LM curves, show graphically what will happen to output (Y) and interest rates (r) if:
a. FED increases money supply and Congress cuts spending.
b. Both government spending and the money supply increase.
c. The FED cuts the money supply and taxes are increased.
