Goods Market: C=50 + 0.8(Y-T) G=110 T = 50 I = 120 - 400r Money Market:M/P=490 L(r,y)=.5y-100r

a. What are the IS and LM equations? Calculate and show graphically the equilibrium output and interest rates?

b. Suppose there is an increased risk in the financial markets changing money demand by 50 units (add or subtract 50 from money demand). Calculate the SR and LR.

c. If the Federal Reserve wanted to stabilize the economy while at the SR equilibrium what policy would they need to conduct? Show this graphically and calculate how large of a policy they would need to conduct.

d. If the Government wanted to stabilize the economy while at the SR equilibrium what three policies could they conduct? Show this graphically and calculate how large of each of the policies would need to be. How different are these policies from what would have been suggested from the Fiscal Multipliers that were learned in introduction to macro?