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    Assuming the following model of a hypothetical economy:
    C=.8(Y-T)
    T=1,000
    I=800-20r
    G=1,000
    Md=.4Y-40r
    Ms=1,200
    a. Write a numerical formula for IS Curve showing Y as a function of r.
    b. Define the LM curve and write down its numerical formula.
    c. Calculate short-term equilibrium levels of Y, r, C, and I. Does investment equal national saving at
    equilibrium?
    d. Suppose that G increases by 200, what will be the change in Y? What is the government purchase
    multiplier?
    e. Suppose that G is back to its original level and Ms
    increased by 200, what will be the short-run
    change in Y? What is the money supply multiplier?
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    a. IS : Y= 5(1000-20r)
    b. LM : Y = 100r+30000
    c. r=10 / Y=4000 / C=2400 / I=600
    d. Y=4500 (dY=500)
    e. Y=4250 (dY=250)

    In d. Y changes less than it was supposed to be (multiplier times change in autonomous component or G) as interest rates rises which crowds out investment,
 
 
 
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