Consider the following closed economy C 140+0.7YD I= 100+ 0.1Y - 200i G = 230 T = 200 Md P M = 6000 P = 5 = Y - 2000i where C' is consumption expenditure, Y is income and output, Y is disposable income, I is investment expenditure, i is the interest rate, G is government expenditure, T is tax, is the demand for real money, M is money supply, and P is the price level. (a) Derive the IS relation in this economy. (3 Marks) (3 Marks) (b) Derive the LM relation in this economy. (c) Solve for the equilibrium level of income and the rate of interest. (3 Marks) (d) Suppose that the current level of output is lower than the natural level Y. Assuming there are no other shocks or policy changes (that is, money supply M, government spending G and taxes I do not change), explain fully how the economy adjusts to its medium-run equilibrium. Illustrate graphically using the AS-AD model. What happens to output and prices over time? (5 Marks)