Assume that we have the following data:

C=100+0.50Y

I_p=100-20r

M_t=0.10Y

M_s=100-10r

M=80

a. Build the IS-LM function.

b. If we assume an increase in Investments by 100 units, please calculate again the IS-LM functions.

c. The intersection of IS-LM functions defines four areas. Please analyze the behavior of the markets for goods and money for each area.

Points to be considered.

• Accurately described (graphically or verbally) the IS-LM functions.

• Accurately describe (graphically or verbally) the shift of the IS-LM function when Investments increase by 100 units.

• Describe each of the four areas defined by the IS-LM function.

• Use appropriate examples.