Consider a closed economy where the goods and money markets are described by the following relationships: 6 = 200 + 0.9(Y T) I = 400 15:- M F=200+Y100r G=150 T=100 M=2000 P=2 Where C is planned consumption, l i=5 planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. a) The government reduces taxation to T=50 ir_1_9_rgl_e_r_t9_ boost economic activity. Assume no changes in the values of all the other variables. 1) What is the immediate increase in income before the economy adjusts to its new equilibrium? [5 marks] 2) What are the economy's equilibrium level of output Y and interest rate following the cut in taxation? Compute the equilibrium level of consumption and investment spending. With the help of the IS/LM graph, carefully explain what happens to the economy following the cut in taxation. [8 marks]