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Questions › DSE › DSE 2018 › Q13
4 marks, −1Macroeconomics › IS-LM model › Deriving aggregate demand from IS-LMModerateabout 3 min

DSE 2018 Question 13: IS-LM model

Consider a closed macroeconomy with Y=C0+c(Y−τY)−αr+G0Y = C_0 + c(Y - \tau Y) - \alpha r + G_0Y=C0​+c(Y−τY)−αr+G0​ and M0=KPY−βrM_0 = KPY - \beta rM0​=KPY−βr, where all constants are positive and c,τ∈(0,1)c, \tau \in (0,1)c,τ∈(0,1). The AD curve for this economy is given by

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Consider a closed macroeconomy with Y = C₀ + c(Y - τ Y) - α r + G₀ and M₀ = KPY - β r, where all constants are positive and c, τ ∈ (0,1). The AD curve for this economy is given by (A) Y = (M₀ + β r)/KP (B) Y = (C₀ + α/βM₀ + G₀)/(1 - c(1-τ) + α/βKP) (C) Y = (C₀ + M₀ + G₀)/(1 - c(1-τ) + KP) (D) Y = (C₀ + M₀ + G₀)/(1 - c(1-τ) + 1/βKP)

Also written as: Consider a closed macroeconomy with Y = C_0 + c(Y - tau Y) - alpha r + G_0 and M_0 = KPY - beta r, where all constants are positive and c, tau in (0,1). The AD curve for this economy is given by

IS-LM model has come up 137 times in 7 exams since 2004.

What this question tests

This question is on Deriving aggregate demand from IS-LM, part of IS-LM model in Macroeconomics.

How varying the price level in IS-LM traces out the aggregate demand curve.

TestStop has 9 past-paper questions on this subtopic; the nearest in year are below.

  • IIT JAM 2021 · Q60An IS-LM closed economy has C = 200 + 0.8(Y - T) - 500r, I = 200 - 500r, T = 20 + 0.25Y, M^d/P = 0.5Y…
Practise IS-LM modelMore on Deriving aggregate demand from IS-LM

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Question from the DSE 2018 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.