1.Consider the Economy of Rwanda. The consumption function is given by = 200 +

0.75[ ] while the investment function is = 200 25. Government purchases

and taxes are both 100.

The money demand function of Rwanda is []

= 100. The nominal money

supply is 100 and the price level P is 2.

i) Derive the IS curve equation.

ii) Draw a well labeled diagram of the IS Curve.

iii) Derive the LM curve equation.

iv) Draw a well labeled diagram of the LM Curve.

v) Determine the equilibrium level of income and equilibrium interest rate

2Using appropriate Phillip's curve diagrams, describe the "short-run" and "long-run"

relationships between inflation and unemployment.