Problem 1.)

Consider the following economy with

C = 400 + 0.75(Y-T)

I = 300 -50r G =200

T = 200 (M/P)

D = 0.5Y - 100r

M = 2000

P = 2

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a. Derive the IS and LM equations.

b .Find the equilibrium r and Y.

c. If _Y = 3000, is the economy faced with recession or expansion?

d.If you were the chairman of the Federal Reserve, what would be your monetary policy? Why?

e.If you were and advisor to the President, what would you recommend as fiscal policy?