1. Suppose that the economy is characterized by the following behavioral equations: C = 260 + 0.6YD I: 250 G= 250 T= 200 Solve for the following variables. Equilibrium GDP ('1') b. Disposable income (Yo) Consumption spending (C) 2. Use the economy described in Problem 1. a. b. Solve for equilibrium output. Compute total demand. Is it equal to production? Explain. Assume that G is now equal to 260. Solve for equilibrinin output. Compute total demand. Is it equal to production? Explain. Assume that G is equal to 260, so output is given by your answer to (b). Compute private plus public saving. Is the sum of private and public saving equal to investment? Explain. Draw the situation in (a) and (b) on the same diagram. 3. Suppose that money demand is given by Md = $Y (.25 - i) where $Y is $150. Also, suppose that the supply of money is $20. 9' What is the equilibrium interest rate? Draw the equilibrium money market. What happen to the equilibrium interest rate if the supply of money is reduced to it)? Draw the impact on the graph in (a). If the central bank wants the rate to be 5 percent. what money supply should it set? Draw the impact on the graph in (b). After market is at equilibrium in (c), what would happen if the average yearly income is reduced by 50%? Draw the impact on the graph in (c)