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Question 3. (16 points) Assume the following model of the economy, with the price level fixed at 1: C =
Question 3. (16 points) Assume the following model of the economy, with the price level fixed at 1:C= 0.8(Y -T)T= 1,000I= 800 -20rG= 1,000Y=C+1+GMS/P = M/P= 0.4Y -40rM = 1,200a.(3 points) Write a numerical formula for the IS curve, showing Y as a function of ralone. (Hint: Substitute out C, I, G, and T.)b.(3 points) Write a numerical formula for the LM curve, showing Y as a function ofr alone. (Hint: Substitute out M/P.)C.(5 points) What are the short-run equilibrium values of Y, r, Y-T, C, I, privated.saving, public saving, and national saving?(5 points) Assume that G increases by 200. By how much will Y increase in short-run equilibrium? What is the government-purchases multiplier (the change in Ydivided by the change in G)?
