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b) In an Economy, the consumers are known to consume 40% of their disposable income, while if they earned no income, they would consume commodities
b) In an Economy, the consumers are known to consume 40% of their disposable income, while if they earned no income, they would consume commodities worth 50 million shillings. The government takes 50% of consumer's income in form of income tax while the other sources contribute 105 million shillings to government. The government spend 250 million shillings on its projects. The rest of the information concerning the economy is as follows: Page 1 of 2 I=125-0.2 r (Investment Function) M_("dTP ")=(1)/(2)Y (Transactions and precautionary demand for money) M_(ds)=100-(1)/(4)r (Specilative Demand for Money) M_(s)=255 (Money Supply) i) Identify the endogenous variables in the models of this economy ii) Drive the IS and LM equations for the economy describe iii) calculate the equilibrium variables of the endogenous variables
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