Exercise 2: Deriving the IS curve We know the following about a keynesian economy: C = 100+0.8 * (Y -T), I = 1200-6000*r, G = 360 and T = 200. Answer…

Exercise 2: Deriving the IS curve

We know the following about a keynesian economy: C = 100+0.8 * (Y -T), I = 1200-6000*r, G = 360 and T = 200.

Answer the following questions!

a) Derive the IS curve!

b) What is the income in equilibrium if the interest rate is r=7%?

c) Consider the following exogenous shock: the government increases its purchases by 90 units. Derive the new

IS curve!

d) What is the size of the shift in the IS curve?

e) Using two adequate graphs (a keynesian cross and an IS curve) show the eects of the scal intervention of

Question c)!

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