An economy is described by the following equations:

Assume that expected inflation is zero so that money demand depends directly on the real interest rate. Also assume the SRAS is horizontal at the current price level.
a. Write the equations for the IS and LM curves. (These equations express the relationship between r and F when the goods and asset markets are in equilibrium.)
b. Calculate the full-employment values of output, the real interest rate, the price level, consumption, and investment.
c. Now suppose that because of investor optimism about the future marginal product of capital, the investment function becomes
Id = 200 - 500r.
Assuming that the economy was initially at full employment, what are the new values of output, the real interest rate, the price level, consumption, and investment in the short run? in the long run? Show your results graphically.

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Desired consumption 130+05(Y--500r Desired investment /d = 100-500r. Government purchases G=100. Taxes Real money demand L=0.5Y-1000r. Money supply Full-employment output Y = 500. T= 100. M = 1320.