Question 1.

The short run Behavior of an economy is described by the its IS curve.

Y=21-3r

and the monetary policy (MP) curve

r=2+0.6

Where is inflation, r is the real interest rate, Y is the real GDP.

Then the aggregate demand curve of this economy can be written in form

y=a-b

Calculate parameter a.

Question 2.

Suppose that the IS curve of an economy can be written as

y=38-5r

The monetary policy (MP) curve is:

r=4+1

Finally the equation of the aggregative supply curve

=^e+1.3(y-14)

Suppose that the economy is a in a long run equilibrium when an oil price shock shifts up the short run AS curve by 4 units.

Calculate output in the new short run equilibrium.

Question 3.

In an economy the consumption function has the form:

C(Y-T, r)=12+0.7(Y-T)-5r

The investment function is

I(r)=49-5r

In both cases the unit of real interest rate is a percentage point. The real GDP is 100,the government purchase is 29while net taxes are 19,

Calculate the equilibrium interest rate in percentage point