Question 19 (6.5 points)
Consider the following closed economy short-run IS-LM model with income
taxation. The economy is described by equations (1) through (6): (1) C=200+0.8 (Y
T); (2) T=800+0.25Y; (3) G=500; (4) I = 700-25r; (5) Y=C+I+G; (6) (M)/(P)=
0.6Y-60r where the nominal money supply M=600 and the price level is P=1.
(There are 25% income taxes in this model). Then, in the short run, the equilibrium
interest rate is given by (approximately):
r^(**)=7.35
r^(**)=11.08
r^(**)=5.54
r^(**)=15.24
Question 17(6.5 points)
Consider a closed economy in the short run.In the short-run IS-LM model with income taxation, taxes are given by T=T+tY. Suppose that MPC = O.75 and the marginal tax rate t =0.2.Then,when the lump-sum component of taxes,T decreases by 1000, then for any given interest rate, the IS curve shifts horizontally
to the left by 1000.
to the right by3000
to the right by 3750
to the right by 1875.
Question 18 (6.5 points)
Consider the following closed economy short-run IS-LM model with income taxation.The economy is described by equations (1) through (6): 1)C =200+ 0.8Y -T2T=800+0.25Y3G=5004I=700-25r5Y=C+I+G:6M/P=
0.6Y-60r where the nominal money supply M=600 and the price level is P= 1. (There are 25% income taxes in this model). Then, in the short run, the equilibrium output for the economy is given by(approximately)
O Y* = 1553.85
O Y* = 2108.00
Y*= 2524.00
Y* = 1900.00
Question 19(6.5 points)
Consider the following closed economy short-run IS-LM model with income taxation.The economy is described by equations (1) through (6): (1) C= 200 + 0.8Y -T;2T=800+0.25Y;3G=500;4I=700-25r;5Y=C+I+G;6M/P=
0.6Y - 60r where the nominal money supply M=600 and the price level is P = 1. There are 25% income taxes in this model.Then,in the short run,the equilibrium interest rate is given by (approximately):
r*=7.35
r*=11.08
O r*=5.54
r*=15.24
