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1. An economy is characterized by the following macroeconomic relationships: C = 2500 + .95Y I...

1. An economy is characterized by the following macroeconomic relationships:

C = 2500 + .95Y

I = 1500 – 5000i

Md = 200,000 + .50Y – 200,000i

Ms = 210,000

What are the equations for the IS and LM curves for this economy? Find the equilibrium values for aggregate output and the interest rate. Check the solution. What is the multiplier for this economy? Sketch the solution in the diagram and show how an increase in the money supply will affect theLM curve and the equilibrium.

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