Exercise 2.

Suppose an economy is represented by the following functions

Co = 100 c = 0.6 I = 500 - 30i L = 50Y - 5i Go = 300 M/P = 300 t = 0.2

a) Determine the function of the IS curve. b) Determine the function of the LM curve. c) Determine the equilibrium income (rent) and interest in the goods market and the money market. d) Graph the equilibrium in the goods market and the money market. e) If the real money supply increases to 500, determine the new interest and equilibrium income, given this monetary policy. f) Graph the situation described in (e), indicating the new market equilibrium.