178.703 – The Theory and Practic of Economics Assignment 1 Due Date: 4 pm, September 14, 2011 (at the beginning of class) 1. The following ve equations describe a somewhat elaborate version of the IS-LM model: Y = C + I + G (1) C = c0 + c1(Y ?? T) ?? c2r (2) T = t0 + t1Y (3) I = I0 + a0Y ?? ar (4) Ms = mY +M0 ?? hr (5) where equations (1), (2), (3), and (4) refer to the national income – expenditure identity, the aggregate consumption function, the tax function, and investment demand. (5) reects the money market with Ms denoting the exogenous money supply.
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