Assume the following model of the economy, with the price level fixed at 1.0: 𝐶 = 0.6(𝑌 − 𝑇) &#1

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Assume the following model of the economy, with the price level
fixed at 1.0:
𝐶 = 0.6(𝑌 − 𝑇)
𝐼 = 400−100𝑟
𝑀𝑠 =400
𝑇 = 600
𝐺 = 600
𝑀𝑑/P =𝑌−150𝑟
a) Write numerical formulas for the IS and LM curves,
showing Y as a function of r alone in both cases. (20%)
b) What are the short-run equilibrium values of Y, r and
private saving? (30%)
c) Suppose MS is increased to 800. What are the new
values of Y and r? Draw
a diagram and explain what will happen. (20%)
d) What would the government need to do to keep a balanced
budget, keep
investment at 200 but increase Y to 1200? Draw a diagram and
explain what will happen. (30%)