nbmgu ll Ltiil L A 1. Consider the following dynamic lS-LM model: E: = C: + I; {Total expenditure) C: = Cg + CK, Cg > 0., D 0,5 > 0 (Investment) L; = kl\"; hi\" h, k > 0 [Money demand) M; = H {Money supply) where it represents the nominal interest rate at time t. The output and the interest rate adjust following ways: :31\"; 2 ME! Yaw} > U All; = .53{Lt 31ft): 33 > U A. Drive the system of difference equations in terms of Y} and it. 13. Find a steady state.. and Draw the phase diagram. C. Suppose that initial level of money supply is given by 1171' = 4M0. Now central bank increases money supply to Ml. Explain the dynamic and steady state effects of monetary expansion on output and interest rate