Given, C = 300 + 0.8YD, I = 200 50(r + 2),

As before, Investment I above, is of the form I = I* - d(r + f); where, f is as defined in class, and is the financial frictions rate.

The rest of the equations describing the economy are, G = 100, T = 50 + 0.25Y, NX = 40 100r, And YD = (Y - T)

(a) Derive an expression for the IS curve

(b) Suppose that the MP curve is given as r=1+0.8TT where TT (pie) is the inflation rate. Determine the Aggregate Demand (AD) Curve