Consider the following IS-LM model for a closed economy.

C= 100 + 0.5 YD

Md = 0.11Y - 1,200i

T= 500 + .1Y

i = 20% (that is 0.2)

I= 2,000 - 1,500 i

G = 500.

a) Calculate the equilibrium level of output (Y)

b) Calculate the money supply for this economy (M).

c) If the money supply increases by $90. What is the new level of equilibrium income and interest rate? Graph this situation in the IS-LM model.

d) Graphically demonstrate what the government would have to do to keep income constant at the initial equilibrium level in a). Explain what type of policies the government could carry out to achieve such a result. What should happen to the interest rate in this scenario?