Consider the following model:

C=20+0.5(Y-T)

I=20-10r

T=0

G=50

QUESTIONS:

d) Suppose now that there is a change in public spending so that G=70. What would be the effect on the IS curve? Show your results in a graph.

e) Suppose now that the change in d) is neutral to deficit so that G=70 and T=20. What would be the effect on the IS curve? Show your results in a graph.

f) Suppose now that interest rate decreases to 0.05. Calculate output and represent your results in a graph.