Consider the following Keynesian closed economy: са = 200+ 0.5Y - 100r Id=250 200r L = 0.5Y 200(r +л²). Long-run output

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Consider the following Keynesian closed economy: са = 200+ 0.5Y - 100r Id=250 200r L = 0.5Y 200(r +л²). Long-run output level, Ỹ, is 970, π² = 0.1, money supply, M, is 4550, and government spending, G, is 50. a. (6 points) Compute the price level, P, at the initial general equilibrium. b. (6 points) Suppose government spending increases from 50 to 80. Find the short-run equilibrium values of output and the real interest rate. c. (6 points) At this new level of government spending, find the new general equilibrium values of output, the real interest rate, and the price level. d. (7 points) Suppose the goal of the Central Bank is to guarantee price stability. What is the level of money supply that would ensure that prices do not change in response to the rise in G? Is this expansionary monetary policy or contractionary monetary policy? Describe the shift in the LM curve and comment on the Central Bank's policy to control inflation.