Assume the following model of the economy, with the price level fixed at 1.0:

C = 0.8(Y - T) T = 1,000

I = 800 - 20r G = 1,000

Y = C + I + G Ms/P = Md/P = 0.4Y - 40r

Ms = 1,200

A.Create the numerical formula for the IS curve, showing Y as a function of r alone.

B.Create the numerical formula for the LM curve, showing Y as a function of r alone.

C.What are the short-run equilibrium values of Y, r, Y - T, C, I, private saving, public saving, and national saving?

D.Assume that G increases by 200. By how much will Y increase in short-run equilibrium? What is the government-purchases multiplier (i.e., the change in Y divided by the change in G)?

E.Assume that G is back at its original level of 1,000, but Ms, which represents the money supply, increases by 200. By how much will Y increase in short-run equilibrium? What is the multiplier for money supply (i.e., the change in Y divided by the change in Ms)?