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Consider the following macroeconomic model. Y=C+I+G (1) (2) C = a + by 1 = - hi G = G MS = M (3)

 

Consider the following macroeconomic model. Y=C+I+G (1) (2) C = a + by 1 = - hi G = G MS = M (3) (4) (5) MD = ky - li (6) 1. Use equations 1-6 to solve for the IS and LM curve. 2. Write the system of equations in matrix form, Ax=b. 3. Solve for Y and i using Cramer's rule 4. Using the solution for Y for part 3, compute the effect on Y of a change in G and a change in M. Fully explain how the size of these are related to the values of k and /.

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