1. The following equations describe an economy.

C= 0.8(1-t)Y

t= 0.25

I= 900-50i

G= 800

L= 0.25 Y - 62.5 I

M/p = 500

(A)What is the equation that describes the IS Curve?

(B)What is the equation that describes the LM curve?

(C)What are the equilibrium levels of income and the interest rate?

2. How does the increase in tax rate affect the IS Curve, the equilibrium level of income, and interest rate?

3. How and why the income and interest sensitivity of demand for real balances affect the slope of the LM Curve?

4. What do you understand by inflation Tax? Who pays inflation Tax?

5. Explain the role of fiscal and monetary policy, causing and ending inflation?