l. The following equations describe an economy. Think of C, I, G, etc., as being measured in billions and i as a percentage; a 5 percent interest rate implies i = 5. c : 0.8(1t)Y t = 0.25 1 = 900 501 G : 300 L = 0.253? 62.5i M = 500 P :1 (a) What are the (i) marginal propensity to consume out of disposal income and (ii) marginal propensity to consume out of total income? (b) Derive the equation that describes the IS curve. (c) Derive the equation that describes the LM curve. (d) Solve for the equilibrium levels of (i) income, (ii) interest rate, (iii) consumption, (iv) investment, (v) money demand and (vi) real money supply. (e) What is the resulting equilibrium government budget surplus? (f) Derive the aggregate demand (AD) curve for the economy. (g) Suppose that the aggregate supply (AS) curve is given by Y = 2,000 +1,000P , is the price level of 1 given above consistent with the equilibrium in the goods market? That is, is there excess demand or excess supply in the goods market? 2. Use the IS-LM and AD-AS models to analyze the eects of a higher government spending on equilibrium (i) output, (ii) interest rate and (iii) prices, assuming that all the curves have the normal shapes