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2. IS-LM and price adjustment The labor demand in an economy is = 1000 100 The labor supply curve is = 55 10(1 ) where

2. IS-LM and price adjustment The labor demand in an economy is = 1000 100 The labor supply curve is = 55 10(1 ) where t is the tax rate on wage income, which is 0.5. Desired consumption and investment are = 300 0.8( ) 200 = 258.5 250 Taxes and government purchases are = 20 0.5 = 50

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