Consider the following version of the IS-LM AD-AS framework. Assume the economy has a full employment output of Y*=2,500 C=300+ 0.75(Y-T) - 300r I=200-200r T=100 +0.20Y G=600 =0.5Y - 500(r+e) Where the expected rate of inflation, e= 0.05 and the nominal supply of money M = 133,200

1. Using the goods market equilibrium condition, determine the equation for the IS curve that gives the market clearing output, Y, given the real interest rate, r.

2. Using the equilibrium condition for the money market, determine the equation for the LM curve that gives the money market clearing output, Y, given the price level, P, and the real interest rate, r.

3. Use the IS and LM equations to find the equation of the Aggregate Demand curve that shows the relationship between Y and P.

4. Calculate the long-run equilibrium values of r, the price level, consumption, and investment.

5. Suppose your job is to predict the effects on employment, output, the real interest rate, consumption, investment, and the price level of the following shocks/policies.