2. The information below describes the current state of the economy for the Kingdom of Gondor. All coefcients {c.g. mo) represent positive constants, and c is bounded between Hand 1. Tis lump sumtax. Assumepricesarefixedintheshortnm. Real money demand: Lfr, I") = at, + If - r Real money supply: 11:: = 2,, Consumption: C = C0 + C(l' T) IT Government spending: G Investment demand: I = In hr a. Derive an expression for Gondor's LM curve. 1What is the slope of the LM curve? Is it positive or negative {explain why)? b. Derive an expression for |Gondor's IS me. What is the slope of the IS curve? Is it positive or negative {explain why)? c. Suppose that the King Aragorn of Gondor changed its taxation law such that tax is now a portion of total income rather than an exogenous lump sum. This new tax policy can be modeled as: T=jY, where j is a positive constant hounded between I} and 1. lie-derive Gondor's IS curve given this change in tax policy {please express IS curve with r on the left hand side of the equation). What is the slope of the IS curve now? Is it positive or negative? Is the curve steeper or atter than the case in part h? Explain your answers carefully. d. Please graphically illustrate, using the ISLM model, how this change in tax policy affects the effectiveness of expansionary monetary policy (in terms of its ability to increase output]. Don't forget to explain your graphical illustration briey. e. Why would such a change in the tax policy improve or reduce the effectiveness of expansionary monetary policy? Please provide an intuitive explanation