QUESTION 1.

the following equation relate to a certain economy, peruse and answer the following question.

T=0.75Y(Tax rate)

L=Y-100r (real money demand)

M= 300(real money supply)

C= 200+0.25Yd (consumption function)

I= 20-10r (investment function)

G= 30 (government purchases)

Required;

1. derive equation for IS and LM curves (6 marks)
2. determine the r and y pair at which the two markets are clearing (4 marks)
3. compute the values of C,I and L. (6 marks)

QUESTION 2.

suppose we have an economy characterized by the following functions;

C= 3000=0.6Yd (consumption function)

I= 1050-125r (Investment function)

G=2000 (government expenditure)

T= 600+0.15Y (Tax Function)

X= 600-0.24Y (net export)

L= Y-100r ( real money demand)

M= 800 (real money supply)

Required;

1. derive IS and LM functions (4 marks)
2. at what values of r and Y is the economy clear? (2 marks)
3. compute equilibrium values of all endogenous variables (4 marks)