4. Consider an open economy with government. Suppose it is described by the following equations:

C = 1350 + 0:75 (Y - T) - 1200r

I = 3000 - 800r;G = 4020; T = 20 + 0:2Y

EX = 4500; IM = 15 + 0:24Y

L = 8Y - 100000r

M = 18960000; P = 120; rrr = 0:2

(a) Find out the equations for the IS and LM curves (do not round up your answer, leave the fraction as it is).

(b) Find out the equilibrium r and Y:

(c) Is the budget balanced? How can you say so?

5. What is Aggregate Demand (AD) curve and how is it derived?

(a) Consider the example given in Question 4. Suppose the general price level P is not .xed. Find out the equation

for AD curve.

(b) Suppose the AS curve is given by: P = 100: Is it Keynesian, or classical AS (pick one)? How much are the

equilibrium price and output?

(c) Suppose instead the AS curve is given by: Y = Ybar : Is it Keynesian, or classical AS (pick one)? How much are the

equilibrium price and output?

(d) Suppose the AS curve is given by: Y = Sbar - s/P. How much are the equilibrium price and output?