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(b) Assume that 7 = 10, G = 5, P = 2 and M = 500. Provide the equations describing the IS curve and the
(b) Assume that 7 = 10, G = 5, P = 2 and M = 500. Provide the equations describing the IS curve and the LM curve and rearrange each one to expressr in terms of Y and constants. Plot the IS and the LM curves on the same graph. Is the government running a budget surplus or a budget deficit? (c) Find the equilibrium interest rate, income, consumption and invest- ment. (d) Suppose the Federal Reserve decreases money supply. Use a graph to show how this will affect r and Y. How are equilibrium consumption " and equilibrium investment / affected by this change? (e) If the new level of money supply is MS new = 150, what is the new equilibrium level of Y and r
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