A closed economy can be described by the following:

C = 1400 + 0.75(Y - T)Y(FE) = 20,000

I = 4000 - 2000rMS = M = 13450

G = 3600Real money demand = ( 0.4Y - 2550r )

Gov't Budget surplus = 400

NOTE:Keep your answers to 2 decimals.

Part A)

Derive the IS curve and the LM curve. Solve for the initial long-run equilibrium, levels of real GDP, consumption, investmentand the nominal price level.

Part B)

Suppose the economy is hit by a shock that permanently raises the level of autonomous investment by 20 percent. Solve for the new short-run equilibrium, levels of consumption, investment, and the level of real output.

Part C)

Suppose the economy is hit by a shock that permanently raises the level of autonomous investment by 20 percent. Solve for the new long-run equilibrium, levels of consumption, investment, and the level of the real money supply.