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
Suppose the rate of interest falls from 15% to 6%. What is the change in the value of aggregate income at which 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 Suppose the rate of interest falls from 15% to 6%. What is the change in the value of aggregate income at which demand and supply for goods and services are equalized in the economy? (A) 1800 (B) 4590 (C) 2790 (D) None of the above
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 Suppose the rate of interest falls from 15% to 6%. What is the change in the value of aggregate income at which demand and supply for goods and services are equalized in the economy?
IS-LM model has come up 137 times in 7 exams since 2004.
What this question tests
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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