Consider the following SR model (i.e., IS-LM in i-Y space, with P fixed); all amounts are in millions of $:

C = 50 + 0.6 YD

T = 20

G = 300

I = 450 + 0.2 Y - 1500 i

a. Derive the IS equation in the form Y = function (i, .).

b. The Central Bank sets an interest rate of 10%. What is the full SR model Eqm Y? Use (M/P)d =3Y 4000i to calculate what the real Ms is at this full SR eqm. Graph the equilibrium in three appropriately linked-up OR separate graphs: i-Y, i-(M/P), and Z-Y spaces.

c. Suppose Congress decides to decrease G from 300 to 200, cet. par. What will the new eqm Y be? Show the effects of this G policy in the 3 graphs of part b. above. Use directional arrows to show all changes in all IS components.