Assume that the economy is characterized by the following equations:

C=1500 + .75(Y-T)

T= 2000

G=2500

I=2500-200r

L(r,Y)=400+0.5Y -200r

Ms=16000

P=2

a. Derive the IS, LM equations. Calculate the equilibrium Y and r. If

Y =17,600, is the economy in recession or expansion?

b. Suppose the policymakers want to balance the budget and achieve Y . What would

be your policy prescription to achieve these goals simultaneously?