Part 2 & 3 are related

2) Consider an economy in the short-run with the price level P fixed at 1 (P = 1). Other relevant information is: C = 100 +0.75 * (Y -T) I = 750 -20 * r T = -40 + (1/3) Y G = 1000; Y = C+I+G (M/P) = 0.4 * Y - 48 * i M' = 1,200 (M/P) = MS/P Suppose investors and bond traders expect inflation, n = 0, so that i = r. Answer the following: (a) Calculate the IS curve, i.e., solve for Y in terms of r. (b) Calculate the LM curve. Again, solve for Y in terms of r. (c) What are the short-run equilibrium values for Y, r, C, I. [ r will not be in decimal form] (d) Show that C + I +G = Y and that S = I (e) Present a properly labeled IS-LM graph showing the equilibrium level of Y and r. (f) Suppose G increases to 1200, solve for the new equilibrium level of Y. (g) What is A Y/ AG? How does this differ from 1-/(1-mpc + mpc(t)? (h) More importantly, why is there a difference? 3) Set G back to 1000 in the previous question. Suppose Yr= 20K.'L", where Yr is full employment potential GDP and K = 100 and L = 400. (1) Solve for the level of G needed to get to full employment. (2) What happens to the rate of interest? Solve for the interest rate