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ISI 2012 IS LM Problem.......Plz help

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ISI 2012 IS LM Problem.......Plz help

MohitG
43 posts
2. Consider the following IS-LM model
C = 200 + 0.25YD,
I = 150 + 0.25Y-1000i,
G = 250,
T = 200,
(m=p)d = 2Y-8000i,
(m=p) = 1600,
where C = aggregate consumption, I = investment, G = government expenditures, T = taxes, (m=p)d = money demand, (m=p) = money supply, YD = disposable income (Y-T).
1)Solve for the equilibrium values of all variables.
2)How is the solution altered when money supply is increased to (m=p) = 1840?
3)Explain intuitively the effect of expansionary monetary policy on investment in the short run.

Can anyone please explain the 3rd part? Thnx in advance
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Re: ISI 2012 IS LM Problem.......Plz help

Akshay Jain
584 posts
after getting the IS LM equations of the given system.....try to eliminate the Y term and get a single equation in terms of rate of int......now solve his equation in terms of rate of int and dn put this value of rate of int in the investment equation......
now u have an equation of investment depending upon the money supply......differentiate it wrt money supply and then interpret the result.....this derivative will be the short run effect of expantionary monetary policy on inveatment in the short run...(also explain what is crowding out)
Akshay Jain
Masters in Economics
Delhi School of Economics
2013-15
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Re: ISI 2012 IS LM Problem.......Plz help

MohitG
43 posts
Thnxx a lot for the help Akshay