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# “Macroeconomics (ECO403)” Assignment No.02 Semester “Spring 2010”

Question#1

What will be the effect of following events on the IS and LM curve?

A. A decrease in money demand caused by the introduction of a new
electronic money card
B. A decrease in the money supply
C. An increase in government taxes
Marks (1+1+1)
Question#02

(A)In the Keynesian cross, assume that the consumption function is given
by:
C = 100 + 0.5 (Y-T)
If planned investment = 100
Government purchases and taxes are both 50
Then calculate the equilibrium level of income.

(B) Suppose that money demand function is:
(M/P)
d
= 1000 – 100r
Where r is the interest rate in percentage, money supply (M) is 1000 and the
price level (P) is 2. What is the equilibrium interest rate?

(Marks:3+4)

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