Derive an algebraic expression for the IS curve for this model and plot it to scale. Compare it with the IS curve. Which is steeper? Why?

Finance question – investment | Business & Finance homework help

Derive an algebraic expression for the LM curve and compare it
with the LM curve in Chapter 8 examples. Which is steeper? Why?
a. The IS Curve:
The IS Curve equation is derived as follows:
Y = C + I + G + X
Y = 220+0.63Y+(400-2,000R+0.1Y)+525-0.1Y -500R
4.33Y = 2245 – 1500 R
Thus, the IS Curve can be expressed as Y= 520 – 375 R .

The given IS Curve (520 – 375 R) is much steeper than the one in Chapter 8 Examples (450 – 500R). This is because a higher rate of return results in lower investment when compared to other scenarios with different respective curves that are not quite so steep yet still provide similar amount of returns but more invesment instead.

b. The LM Curve:
The LM Curve equation can be derived by substituting M=(0.1583 * Y-1000*R)*P into above equation such that we get;
M=((0 .1583 *520)-1000* R)*P
Therefore,theLMCurvecanbeexpressedas R= 512– 0 .2375M/ P

This LM curve is relatively flatter than those seen in prior chapter whilst having same effect i.e., higher money supply leading towards decrease interest rates & vice versa too however this time around less obvious due slightly shallower slope presented.