ISI 2005 - IS LM Query
Posted by MohitG on Oct 28, 2013; 4:19am
URL: http://discussion-forum.276.s1.nabble.com/ISI-2005-IS-LM-Query-tp7584178.html
5. Consider an IS–LM model. In the commodity market let the consumption function be given by C = a + b Y, a>0, 0< b <1. Investment and government spending are exogenous and given by I0 and G0 respectively. In the money market, the real demand for money is given by L = kY – gr, k> 0, g >0. The nominal money supply and price level are exogenously given at M0 and P0 respectively. In these relations C, Y and r denote consumption, real GDP and interest rate respectively.
(i) Set up the IS – LM equations.
(ii) Determine how an increase in the price level P1, where P1 > P0, would affect real GDP and the interest rate.
Please explain the second part, I am kinda stuck.
URL: http://discussion-forum.276.s1.nabble.com/ISI-2005-IS-LM-Query-tp7584178.html
5. Consider an IS–LM model. In the commodity market let the consumption function be given by C = a + b Y, a>0, 0< b <1. Investment and government spending are exogenous and given by I0 and G0 respectively. In the money market, the real demand for money is given by L = kY – gr, k> 0, g >0. The nominal money supply and price level are exogenously given at M0 and P0 respectively. In these relations C, Y and r denote consumption, real GDP and interest rate respectively.
(i) Set up the IS – LM equations.
(ii) Determine how an increase in the price level P1, where P1 > P0, would affect real GDP and the interest rate.
Please explain the second part, I am kinda stuck.
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