1. An economy is described by the following equations. Equilibrium in the goods market satises Y = C + I + G, where C = 10+0.6Y G = 59.5, and I = 80 61' (r is denoted in percentage terms) This implies that the IS curve becomes DAY 2 149.5 6r. Equilibrium in the money market is given by M Y ?+170Sr. The implied aggregate demand curve of the economy then becomes The aggregate supply curve for the economy is given by Y = )7 + 200(PP'5), where P\"3 is the expected overall price level and 17 is the natural (long-run) level of output. Assume that l7 = 200. (a) Calculate the long-run equilibrium of the economy (i.e., P and Y) when P'3 = . Illustrate your answer with a graph. (b) \"That is the level of the money supply when the economy is at the long-run equilibrium that you found in (a)? (c) Suppose now that rms become pessimistic about the economy and, as a con- sequence, the aggregate demand curve shifts to the left, resulting in a recession where equilibrium output is Y = 180. We model rms' pessimism by assuming that the constant term in the investment function (80 above) decreases, that is, investment is now given by I = b r, where b is now a number that is lower than 80. Continue to assume that P\"3 = 1. Calculate the values of the price level (P), the interest rate (r), the constant b in the investment function, investment (I), and consumption (C) for this recession-struck economy