Assume an goods and services market of an economy is characterized by the following

equations:

C = 0.8 (Y - T)

I = 800 -20r

Y = C + I + G

T = 1000

G = 1000

9. Consider for the moment the Keynesian Cross model. What will happen to the

GDP if G increases by 200? What is the multiplier?

10.Keep considering the Keynesian Cross model. What will happen to the GDP if T

increases by 200? What if both G and T increase by 200?

11.Derive a formula for the IS curve, showing Y as a function of r .

The money market for this economy is described by the equations:

(M/P) power d = 0.4Y - 40r

M = 1200

P = 1

12.Derive a formula for the LM curve, showing Y as a function of r .

13.What are the short run values of Y and r ?

14.What are the short run values of Y and r if G increases by 200? What is the

multiplier? Is the value different from what you calculated for question 9? Explain

why it is different.

15.Derive a formula for the AD curve, showing Y as a function of P .

Please answer question number 12 to 15