Business, 01.06.2021 01:30, naomihiggins4033

Assume that initially the IS curve is given by: IS1: Y = 12-1.5T-30i+2G and that the price level P is 1 and the LM curve is given by LM1: M = Y(1-i) The home central bank uses the interest rate as its policy instrument. Initially, the home interest rate equals the foreign interest rate of 10% or 0.1. Taxes and government spending both equal 2. Call this case 1. a. According to the IS1 curve, what is the level of output Y? Assume this is the desired full employment level of output.
b. According to the LM1 curve, at this level of output, what is the level of home money supply?
c. Plot the curves for case 1 on a chart, label axes and equilibrium values. d. Assume that forex market equilibrium is given by i=([1/E]-1)+0.1 where the two foreign return terms on the right are expected depreciation and the foreign interest rate. The expected future exchange rate is 1. What is today’s spot exchange rate?

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Assume that initially the IS curve is given by: IS1: Y = 12-1.5T-30i+2G and that the price level P i...