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4) Consider an economy closed to international trade where the goods market is described by the following series of equations C = 200 + 0.75
4) Consider an economy closed to international trade where the goods market is described by the following series of equations C = 200 + 0.75 (Y - TA) I = 200 - 25i G = 100 TA = 100M d The money market is given by the demand function (F) = Y 1001' And the supply function M = 1000. Suppose the price level is fixed at P = 2. a) Find the equilibrium Interest rate 1' and the equilibrium level of income Y. b) Suppose that government purchases are raised from 100 150. What are the new equilibrium interest rate and level of income and how much private investment would be crowded out?? c) Suppose instead that the money supply is raised from 1,000 to 1,200. (keep G = 100) What are the new equilibrium interest rate and level of income? d) With the initial values for monetary and fiscal policy, suppose that the price levei rises from 2 to 4. What are the new equilibrium interest rate and level of income? e) Derive and graph an equation for the aggregate demand curve. What happens to this aggregate demand curve if fiscal or monetary policy changes, as in parts (b) and (c)? What about if P changes
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