Question

Suppose that the following equations describe an economy. Y = Cd + Id + G Cd...

Suppose that the following equations describe an economy.

Y = Cd + Id + G

Cd = 180 + 0.8(YT)

Id = 140 – 8r + 0.1Y

T = 400

G = 400

(Md/P) = 6Y – 120i MS = 6000 i = πe + r

Assume expected inflation πe = 0 and price level P = 1.

  1. Find the equation for the IS curve.
  2. Find the equation for the LM curve.
  3. Find the equilibrium values for output and the interest rate.
  4. At this equilibrium, what is the level of consumption and investment?

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