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Desired consumption is Cd = 50 + 0.5 Y - 300 r - 0.7 G , where G = 50 and desired investment is Id

Desired consumption isCd= 50 + 0.5Y- 300r- 0.7G, where G = 50 and desired investment isId= 100 - 400r. Real money demand is Md/P=Y- 1000r Other variables are P = 2 andM= 2100.

a. Find the equilibrium values of the real interest rate, output (Y), consumption, investment.

b.Suppose the money supply increases to 2800. Find the equilibrium values of the real interest rate and output (Y).

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