Consider an economy described by the following equations:

C=100+0.9Yd,

I=600-30r,

TR= 50

G=300,

T=50+1/3Y,

Md=0.4Y-50r,

Ms=520.

P=2

Where C is consumption expenditure, I is investment expenditure, G is government expenditure, T is the tax, TR is transfer payments, Md is nominal money demand, MS is nominal money supply, r is interest rate, Yd is disposable income, P is price level and Y is income.

Derive the IS and LM equations and find the equilibrium income and interest rate.

What is the new level of income and interest rate if government spending increases by 100.

define crowding out effect.

(present your solutions graphically)