Description
There are two questions in short-run model. One is about IS Curve, and another one is about AS Curve. Please help me solve these two questions in two pictures. Thanks
(1) For the short-run model of the economy, the IS curve is written as YT= a-b(Rt-r) . Answer the following questions about the IS curve.
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Explanation & Answer
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Running head: MACROECONOMICS
1
Macroeconomics
Name
Date
MACROECONOMICS
2
1) Y t= a-b (Rt-r)
a) Define Y t
This represents the output of the market. This represents the total amount of goods that are
purchased by consumers. The output is for the whole economy as it incorporates both
expenditures of the households and the government.
b) Define a
This represents the total income of the household. It shows all the income that the household
receives in a given time period.
c) Define b
This is the income multiplier. As a fraction, it represents the multiplier with the denominator
having a value that represents the marginal propensity to consume.
d) Define Rt
This represents the percentage of disposable income as a percentage of the total income. The
disposable income is the income the individuals are willing to spend on investments and other
expenses.
e) Define r
This represents the investment r...