Economics IS Curve

[investmentrookie]

Hi All,
I need help with the change of equilibrium income when government spending increases.
Ex.page 238 question 3:
Gov. spending increases from $1,500 to $2,000. Find the IS Curve. Does the increase in gov. spending result in an ewual increase in equilibrium income for any given level of the real interest rate? Why or Why not?
Previously Y=12,292.7 - 73.2r
after the increase in Gov spending Y=13,512.2 - 73.2r
Thanks

 

[passa11]

also stuck with this question. it seems to be not correct in currilicilum. think that 12.292.7+500=12792.7 is the right answer not the 13512.2.
why increase in 500 in G increases Y by 1219.5.
if I am right or wrong please write here…
page 225 question 3 in CFA 2013
thx

 

[passa11]

omg. have found my mistake. simple mistake in calculations ….

 

[edupristine]

Increase in govt. spending does not necessarily leads to an equal increase in equilibrium income for any given level of the real interest rate.
In fact, a multiplier is commonly used to establish the relationship betwen the two.
dG = m*dY.
Here, m is the multiplier. In your example, the value of m = 2.44. That means if govt. spending increases by 500, the equilibrium income would increase by 2.44*500 = 1219.5
The multiplier can be computed by accomodating for changes in Savings, Investments, Tax and Net Exports given changes in govt. spending.
Hope this helps!!!