5. Consider the following economy: Desired consumption Cd == 1275 + O.S(Y- T) - 200r. Desired investment I d == 900 - 200r. Real money demand L == O.SY - 200i. - Full-employment output Y == 4600. Expected inflation 1Te == 0.

a. Suppose that T = G = 450 and that M = 9000. Find an equation describing the IS curve. (Hint: Set desired national saving and desired investment equal, and solve for the relationship between r and Y.) Find an equation describing the LM curve. (Hint: Set real money supply and real money demand equal, and again solve for the relationship between r and Y, given P.) Finally, find an equation for the aggregate demand curve. (Hint: Use the IS and LM equations to find a relationship between Y and P.) What are the general equilibrium values of output, consumption, investment, the real interest rate, and price level?

b. Suppose that T = G = 450 and that M = 4500. What is the equation for the aggregate demand curve now? What are the general equilibrium values of output, consumption, investment, the real interest rate, and price level? Assume that full-employment - output Y is fixed.

c. Repeat Part

(b) for T= G = 330 and M = 9000.