Principles of Macroeconomics|ECON112|British Columbia Institute of Technology

PS Note: Am in particular after the solutions to part e and f The following equations describe a small open economy. [Figures are in millions of dollars; interest rate (i) is in percent]. Assume that the price level is fixed. Goods Market Money Market C = 250 + 0.8YD L = 0.25Y – 62.5i YD = Y + TR – T Ms/P = 250 T = 100 + 0.25Y I = 300 – 50i G = 350; TR = 150 Goods market equilibrium condition: Y = C + I + G + X-M Money market equilibrium condition: L = Ms/P a) If you were your Reserve Bank advisor, what would you recommend the Reserve Bank to do to keep the interest rate constant? b) Show the impact of the above d) and e) on the IS-LM framework. Would the IS curve now relatively flatter or steeper and why?