Macroland is a closed economy. It can be described by the IS-LM model.

Long-run level of output: YFE = 20000

Consumption: C = 3000 + 0.8(Y - T) - 150r

Investment: I = 3000 - 350r

Government spending: G = 4000

Real money demand: L(r, Y) = 0.5Y - 600r

Note: Interest rate, r, is expressed in percentage points, i.e., if r = 7.5, then r = 7.5%. Keep your answer

to 2 decimal places if needed.

a)The economy is initially in its long-run equilibrium as shown in part (a). Now, due to the outbreak

of the pandemic, there is an extensive use of online payment apps. As a result, the fraction of income

holds in the form of money drops from 0.5 to 0.4. Find equilibrium values of real output, private

savings, real interest rate, and real money balance in both short run and long run.