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  • DED-CED 1306 Introduction To Macroecon Open Book CAT

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    Stellamaris Mutuku
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    Fiscal policy can be used to correct an inflationary gap by: 1) Raising taxes to reduce aggregate demand 2) Reducing government spending to reduce aggregate demand 3) Combining tax increases and spending reductions to further reduce aggregate demand The document provides equations and values to derive the IS and LM curves for a hypothetical economy. It asks the reader to: 1) Graph the IS and LM curves and find the equilibrium interest rate, income, consumption, and investment 2) Recompute the equilibrium values if autonomous investment is reduced by $200

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    DED-CED 1306 Introduction to Macroecon Open Book CAT

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    Fiscal policy can be used to correct an inflationary gap by: 1) Raising taxes to reduce aggregate demand 2) Reducing government spending to reduce aggregate demand 3) Combining tax increases and spending reductions to further reduce aggregate demand The document provides equations and values to derive the IS and LM curves for a hypothetical economy. It asks the reader to: 1) Graph the IS and LM curves and find the equilibrium interest rate, income, consumption, and investment 2) Recompute the equilibrium values if autonomous investment is reduced by $200

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    Download as docx, pdf, or txt
    19 views1 page

    DED-CED 1306 Introduction To Macroecon Open Book CAT

    Uploaded by

    Stellamaris Mutuku
    Fiscal policy can be used to correct an inflationary gap by: 1) Raising taxes to reduce aggregate demand 2) Reducing government spending to reduce aggregate demand 3) Combining tax increases and spending reductions to further reduce aggregate demand The document provides equations and values to derive the IS and LM curves for a hypothetical economy. It asks the reader to: 1) Graph the IS and LM curves and find the equilibrium interest rate, income, consumption, and investment 2) Recompute the equilibrium values if autonomous investment is reduced by $200

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 1

    QUESTION ONE

    With the aid of a well labeled diagram explain how fiscal policy may be used to correct an

    inflationary gap in an economy.

    QUESTION TWO

    A hypothetical simple economy is described by the following equations


    C=500+0.75(Y-T)
    I=1000-50r
    M/P=Y-200r
    G=100
    T=1000
    M=6000
    P=2
    Required:
    i) Derive and graph the IS curve and the LM curve.
    ii) Calculate the equilibrium interest rate (r), level of income (y),Consumption ( C) , and
    Investment (I)
    iii) In autonomous investment reduces by 200, compute the new equilibrium interest rate
    (r), level of income (y),Consumption ( C) , and Investment (I)

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