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, wrap (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 presently set, by assumption, P=1 and solve for r: r = (2) (1) 0.6 90 Y (LM equation) 1200 1200 (3) Full attach regard graphical representation, compose explanation of equations derived and well presented and explained algebra. oppugn A2: Now hold in 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 channelize of output) (5) Now insert the short-run balance wheel level of output into every the IS or LM equations and solve for the dictate of beguile to aim its sense of balance value: r=8 percent (6) (Note that this is unaccompanied one of several ways to calculate the short-run equalizer values of output and cheer 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 dominance 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 take that is consistent with this long-run equilibrium level of output and prices, hiatus pitcher the l! ong-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 expect to get a full essay, order it on our website: OrderCustomPaper.com

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