Expenditure SectorMoney Sector

Y= C + I + G + NXM= 700

C= 100 + (4/5)YDP= 2

YD= Y - TAmd = (1/3)Y + 200 - 10i

TA= (1/4)Y I= 300 - 20i

G= 120 NX= -20

1) Derive ISLM curves , calculate the equilibrium income and interest rate.

2) If the government spending increases by G = 160calculate the crowding out effect and changes in interest rate.