3 Consider the following economy. Desired consumption Cd = 250 + O.5(Y - T) - 500r. Desired investment Id = 250 - 500r. Real money demand L = 0.5Y - 500i. Full-employment output Y = 1000. Expected inflation rr' = O.

a. Suppose that T = G = 200 and that M = 7650. Find an equation describing the IS curve. Find an equation describing the LM curve. Finally, find an equation for the aggregate demand curve. What are the equilibrium values of output, consumption, investment, the real interest rate, and the price level? Assume that there are no misperceptions about the price level.

b. Suppose that T = G = 200 and that M = 9000. What is the equation for the aggregate demand curve now? What are the equilibrium values of output, consumption, investment, the real interest rate, and the price level? Assume that full-employment output, Y, is fixed.

c. Repeat Part

(b) for T = G = 300 and M = 7650.