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Consider the economy of Wiknam. The consumption function is given by C = 250 + 0.6...

Consider the economy of Wiknam. The consumption function is given by C = 250 + 0.6 ( Y – T ) . The investment function is I = 100 – 20 r . The money demand function is ( M P ) d = Y – 20 r . Round answers to two places after the decimal where necessary.

a. Government purchases and taxes are both 100. In the accompanying diagram, graph the IS curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations.

b. The money supply M is 2,875 and the price level P is 5. In the accompanying diagram, graph the LM curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations.

c. Find the equilibrium interest rate, r, and the equilibrium level of income Y.

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