IS LM

[econ11]

The equation for the IS curve is given as
Y=co+bo+G bl i
1-cl(1-t) 1-c1(1-t)
and that for the LM curve is given as
s
i=- mo- P +mlYl
2
where Y is income, i is the rate of interest, Pis the price level, Ms is money supply and
G denotes government spending.
Further, l1e-t 011(1- t) = X. Then the expression for the aggregate demand function and its slope will be?
 
how to approach such problems ? someone please give the explanation .

[econ11]

someone please reply  

[Homer Simpson]

can you post the question again? your equations are not clear.

[econ11]

it is question no. 25 from jnu sis 2013

[Dreyfus]

I m getting option c...wid slope being -1/(p^2)(m2+b1m1lambda))

[econ11]

could you explain the approach ? how to solve these problems?

[ViV]

Yeah! It's (c)

[econ11]

how did you solve?

[Homer Simpson]

usual AD slope is negative, observe coefficients between Y and i of the IS and LM relations. They are negative and positive respectively. So we definitely have the usual case. Substitute lamda in the IS equation.

Now either (a) or (c) should work as AD has negative slope. to find which one, simply plug in the i value from LM into the IS equation. Solve for Y and you will see its (c).