Q.3 Consider the economy summarized by the following equations: C = 300 + 0.8Yd I = 150 – 0.5r G = 250 Md = Y + 200 – 12

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Q.3 Consider the economy summarized by the following
equations:
C = 300 + 0.8Yd
I = 150 – 0.5r
G = 250
Md = Y + 200 – 12r
Ms = 320
T = -20 + 0.2Y
a) Obtain the expressions for IS and LM curves.
b) Using the IS and LM curve expressions found in part (a),
calculate the equilibrium
level of output and interest rate.
c) Using the IS-LM framework, explain the effect of an increase in
the general price
level on the aggregate output level. (You need not present
calculations, but explain
the underlying dynamics.)