1.Suppose Private consumption C = 500+0.8YD, while Net taxes NT = 0.2Y-50, Government spending G = 250, Gross fixed capital formation I = 300-20i, derive the IS curve.

2.Explain which factors cause a shift of the IS curve (above) to the right (north east).

3.Determine the slope of the IS curve above - what does it imply

4.For the investment function I = I₀-bi, find I/i. Compute the change in investment if interest rate declined by 2 percentage points (pp). Suppose b = -50.

5.Suppose real money balance = 500, and P =1. If demand for money (L) = 0.25Y - 50i, determine the LM curve.

6.Explain what causes the shift of the LM curve.

7.Suppose the bonds demand (Bd) = 350-20i, and bonds supply (Bs) = 50i, determine the interest rate the clears the bonds market.

8.Suppose k = 0.5, Y = 5000, h = -50, determine the level of Md, if interest rate was given as in question (7).

9.What should be the level of nominal money supply set by the central bank if P was 2 in question (8).

10.How does financial market impact a modern economy?