1a.Use the Keynesian cross to derive an expression for the government spending multiplier, Y/ G. Discuss how the marginal propensity to consume (MPC) affects the multiplier.

1b. Use the Keynesian cross or the loanable funds market to derive the IS curve. Why is the good market in equilibrium when investment equals savings? Discuss how fiscal policy shifts the IS curve. Why does the IS curve shift?

1c. Use the money market diagram to derive the LM-curve. Discuss how monetary policy shifts the LM curve.

1d. Consider the intertemporal consumption savings choice of the household. What is the difference between the PE and GE implications of our analysis (can use equations)? Hint: First explain the difference between PE and GE in your answer. This will shed light on the main difference.