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Suppose that the following equations describe an economy. (C, I, G, T, and Y are measured in billions of dollars, and r is measured as a percent; for...
Suppose that the following equations describe an economy. (C, I, G, T, and Y are measured in billions of dollars, and r is measured as a percent; for example, r = 10 = 10%) C=170+0.6(Y-T)T=200I=100-4rG=350(M/P)^d=L=0.75Y-6r(M^s)/P=735a. Derive the equation for the IS curve (Hint: It is easier to solve for real output Y here)b. Derive the equation for the LM curve (Hint: Again, it is easier to solve for real outputY here)c. Now express both the IS and LM equations in terms of r. Draw both curves andcalculate their slopes.d. Use the equations from Parts a and b to calculate the equilibrium levels of real output Y,the interest rate r, planned investment I, and consumption C.e. At the equilibrium level of real output Y, calculate the value of the government budgetsurplus.f. Suppose that G increases by 36 to 386. Derive the new IS and LM equations and drawthese curves on the graph you drew for Part c.
