1. Consider the following economy:

C = 3, I = 1.5, G = 2.65, T = 2, f = 0.5, d = 0.1, a = 0.8

a) Write the mathematical expression of the consumption function

b) Write the mathematical expression of the investment function

c) Find the IS curve and graph it

d) If r = 10, what is the level of Y in equilibrium?

e) Assume now that f = 1. Find the new IS curve

f) Which way did the curve shift and why?

2. Consider the following economy:

The IS curve: Y = 16-2r

The MP curve: r = 3+0.5pi

Derive the AD curve

3. Consider the following economy:

The MP curve: r = 2+0.5pi

The AD curve: Y = 20 - 0.25pi

Derive the IS curve