Suppose there is a closed economy without government expenditure or taxation in which aggregate consumption expenditure is the following function of aggregate income and the rate of interest (expressed per cent) : . Suppose investment expenditure is given by the following function :
If the rate of interest is fixed at 15%, what is the value of aggregate income at which the values of demand and supply for goods and services are equalized in the economy?
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Suppose there is a closed economy without government expenditure or taxation in which aggregate consumption expenditure C is the following function of aggregate income Y and the rate of interest (expressed per cent) r: C = 388 + 0·75Y - 15r. Suppose investment expenditure I is given by the following function: I = 1863 + 0·05Y - 25r If the rate of interest is fixed at 15%, what is the value of aggregate income at which the values of demand and supply for goods and services are equalized in the economy? (A) 5575 (B) 6825 (C) 7675 (D) 8255
Also written as: Suppose there is a closed economy without government expenditure or taxation in which aggregate consumption expenditure C is the following function of aggregate income Y and the rate of interest (expressed per cent) r: C = 388 + 0*75Y - 15r. Suppose investment expenditure I is given by the following function: I = 1863 + 0*05Y - 25r If the rate of interest is fixed at 15%, what is the value of aggregate income at which the values of demand and supply for goods and services are equalized in the economy?
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This question is on Deriving the IS curve, part of IS-LM model in Macroeconomics.
How the goods market gives a downward-sloping relation between the interest rate and income.
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Question from the JNU SSS 2014 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.