Econ262 – Mathematical Applications for Economics

Assignment 2

Submission: 4 PM 30th March 2020

Section A
Do the following questions from Alpha C. Chiang and Kevin Wainwright. Fundamental Methods of
Mathematical Economics. 4th Edition:

Exercise 5.7 – 4, 6

Exercise 6.4 – 1, 3

Exercise 6.7 – 5

Exercise 7.2 – 4, 5, 10

Exercise 7.3 – 4, 6

Exercise 7.4 – 2, 4, 5, 7

Exercise 7.5 – 2

Exercise 7.6 – 1, 2

Exercise 8.1 – 3, 4, 6

Exercise 8.2 – 3, 6, 7

Exercise 8.4 – 2, 3, 5

Exercise 8.5 – 4, 5, 6, 10

Exercise 8.6 – 2, 3, 5, 6

Section B

Solve the following IS-LM model without any substitutions for Consumption, Investment, Tax or Money
Demand. You may substitute exogenous Government Expenditure G 0 in the Goods market and use
M 0=L(Y , r ) for the Money market.
Essentially, you should end up with a system of 5 equations and 5 endogenous variables. Use a 5 x 5
matrix and the Implicit Function Theorem to find the effect of a change in government expenditure on
Income and Interest rate.
Y =C + I + G

C=C ( Y −T ) , 0<C ' <1

I =I ( r ) , I ' <0
G=G 0

T =T ( Y ) , 0<T ' <1

M d =L ( Y , r ) , LY >0 , Lr <0

M S =M 0