Условие:
Consider the following set of equations characterizing the goods market and money market of an economy:
• Goods market:
– Consumption: C= c0 + c1(Y→ T ), with 0 < c1 < 1
– Investment: I= b0 + b1Y→ b2i, with 0 < b1 < 1→ c1, and b2 > 0
1– Government Spending: G= G
– Taxes: T= T
• Money market:
– Interest rate: i= i
(a) Identify the endogenous and exogenous variables. Can you solve the model? If not, complete the model.
(b) Derive the equations of the IS and LM curves.\nIn the remainder of this exercise use:
• Consumption: C = 200 + 0.25(Y→ T )
• Investment: I = 150 + 0.25Y→ 1000i
• Government Spending: G = 250
• Taxes: T = 200
• Goods market equilibrium Y= C + I + G
• Interest rate: i = 0.05
(c) Solve the IS-LM equation system for the equilibrium level of income Y , and the equi-librium level of the interest rate i.
(d) Compute the equilibrium values of consumption and investment, and verify that the obtained income level is equal to the sum of consumption, investment and government spending.
(e) Suppose now that the central bank wants to stimulate the economy. What is the max-imum level of income it can obtain, assuming that the government keeps government spending and taxes at their initial levels. How does the central bank change the interest rate?
(f) Suppose, alternatively, that government increases its spending by 50 units while the central bank maintains the interest rate at 0.05. Describe first in words how this expansionary fiscal policy change is expected to a!ect the equilibrium level of income. How does the central bank react to keep the interest rate at 5%? Then depict the new equilibrium graphi
