a) The consumption function is given by C=400+0.5(Y-T). The investment function is I=600-25r. Government spending and taxes are both 400. Solve for and graph the IS curve for this economy.

b.) The money demand function is (M/P)^d=Y-50r. The money supply is 4,000 and the price levelis 5. Solve for the LMcurve and then plot it on your graph above.

c) Find the equilibrium interest rate and the equilibrium level of income

d) Suppose that the money supply is lowered from 4,000 to 2,000. What is the new equilibrium interest rate and level of income?

e) Assume the money supply is back to 4,000. Suppose now that government spending is lowered from 400 to 200. What is the new equilibrium interest rate and level of income?

f) Assume the money supply is back to 4,000 and government spending is back to 400. Derive and graph an equation for the aggregate demand curve. What effect would the monetary policy change in part d.) have on the aggregate demand curve? What about the fiscal policy change in part e.)