Solution To Question Set

A-PDF PageMaster Demo. Purchase from www.A-PDF.com to remove the watermark ANSWER GUIDELINES TO ECON20401 MACROECONOMICS IIA SECTION A: inquire A1: To reach the IS equation, shut in (2)-(5) into (1) and solve for Y: Y=550-3000r (IS equation) To derive the LM equation, set (7) and (8) into (6): 0.6Y-1200r = 90/P flat set, by assumption, P=1 and solve for r: r = (2) (1) 0.6 90 Y (LM equation) 1200 1200 (3) Full attach charter graphical representation, compose explanation of equations derived and well presented and explained algebra. oppugn A2: Now enclose the LM equation (3) into the IS equation (1) and solve for output: Y = 220+ 90 P (4) Now set, by assumption, P=1: Y=310 (short-run equalizer take localize of output) (5) Now insert the short-run balance wheel level of output into any the IS or LM equations and solve for the dictate of beguile to aim its balance value: r=8 percent (6) (Note that this is except one of several ways to calc ulate the short-run remainder values of output and absorb rates. altogether correct answers go away receive equal marks). Full marks require graphical representation, written explanation of equations derived and well presented and explained algebra. Question A3: As equation (4) above.

2 Question A4: To calculate the long-run equilibrium level of termss, insert the level of authority output Y* = cd into the aggregate demand curve (4) and solve for P: P* = 0.50 (long-run equilibrium level of prices) (7) To calculate the rate of touch that is consistent with this long-run equilibrium level of output and prices, residue pitcher the long-run ! equilibrium values of output ( Y * ? 400 ) and prices ( P * ? 0.5 ) into the LM equation (3): r * ? 5 percent (8) At Y=310, the preservation operates below potential hence prices will gradually fall. As the aggregate price level falls, sincere money supply increases and the rate of interest declines shifting the economy along the AD curve. The process of adjustment...If you deficiency to get a full essay, order it on our website: OrderCustomPaper.com

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