4. An economy is described by the following equations: Desired consumption cd = 300 + O.S(Y - T) - 300r. Desired investment I d == 100 - 100r. Government purchases G == 100. Taxes T == 100. Real money demand L == 0.5Y - 200r. Money supply M == 6300. Full-employment output Y == 700.

a. Write the equation for the aggregate demand curve. (Hint: Find the equations describing the goods market and asset market equilibria. Use these two equations to eliminate the real interest rate. For any given price level, the equation of the aggregate demand curve gives the level of output that satisfies both goods market and asset market equilibria.)

b. Suppose that P == 15. What are the short-run equilibrium values of output, the real interest rate, consumption, and investment?

c. What are the long-run equilibrium values of output, the real interest rate, consumption, investment, and the price level?