Consider an economy described by the following:

C = 4 trillion I = 1.5 trillion G = 3.0 trillion T = 3.0 trillion N X = 1.0 trillion f = 0 mpc = 0.8 d = 0.35 x = 0.15 l = 0.5 r = 2

a. Derive expressions for the MP curve and AD curve.

b. Calculate the real interest rate and aggregate output when π 5 2 and π 5 4.

c. Draw a graph of the MP curve and AD curve, indicating the points in part

(b) above.