[30 pts.]Items a and b refer to the LM and c to the IS. Real money demand is M^d/P= 3,000 +0.1Y - 10,000i. Other variables arep^e= 0.02, P =2, and M= 6,000. Recall that i = r +p^e.

1. What is the real interest rate, r, that clears the money market when Y = 10,000? And when Y = 20,000? Graph the LM curve. (10)

c) Recall that S^d = Y - C^d - G and you need to equate S^d to I^d to solve for r in the IS market. Suppose you obtain desired savings as a positive function of output and real interest rates, plus a constant: S^d = 20 + 0.4Y +1,000r. Explain the two coefficients of this savings function: on output and on r. Are they acceptable? Why or why not? (10)