Suppose that the equation for autonomous planned
Question # 00578070
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Updated on: 08/24/2017 06:53 AM Due on: 08/24/2017
IS LM Curve
. Problem 1
Suppose that the equation for autonomous planned spending, Apr is Ap = 6,200-200r and the value of the multiplier, k, is 2.5.
(a) Derive the equation for the IS curve, Y = kAp. Graph the IS curve for interest rates between 0 and 8, with intervals of one-half of a percentage point.
(b) Suppose the equation for the LM curve is Y = 13,500 + 100r. Use this equation to explain the level of income at which there is a zero lower bound on the federal funds rate, the interest rate that the Fed controls.
(c) Graph the LM curve for interest rates between 0 and 8, with interval of one-half of a percentage point.
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Solution: Suppose that the equation for autonomous planned