Graphically derive the IS curve from the goods market equilibrium.

Do not forget to label and explain everything.

Explain in detail what effect a Fed sale of bonds will have on:

(1) the LM curve; and (2) the IS curve.

Lets say there is a simultaneous increase in government spending and reduction in the money supply. Explain what effect this particular policy mix will have on output and the interest rate. Also, do we know with certainty what effect this policy mix will have on investment? Explain.

What is meant by bank run? Explain in the context of case study given in your textbook.

Consider the following IS-LM model: Do not forget to show the steps. Note that your grade depends on the work you show to arrive at an answer.

C = 200 + 0.25( Y_d)

I = 150+0.25Y1000i

G = 250

T = 200

(M / P)^d = 2Y - 8000i

M^s = 3200 and P = 2

(Points: 4) Derive the IS relation ( Y in terms of i)

(Points: 2) Derive the LM relation ( Y in terms of i)

(Points: 3) Solve for equilibrium real output.

(Points: 3) Solve for the equilibrium interest rate.

(Points: 4) Solve for the equilibrium values of C and I, and verify the value

you obtained for Y by adding C, I and G.

(Points: 8) Now suppose that the money supply increases to M / P = 1,840. Solve

for Y, i, c, and T, and describe in words the effects of an expansionary

monetary policy.

(Points: 6) Set M/P equal to its initial value of 1,600. Now suppose that

government spending increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, i, and C.