Question 1-b 1-b

.Let the IS equation be Y = 1A: 1%, R, where l-b is the marginal propensity to save, g is the investment sensitivity to interest rates, and A is an aggregate of exogenous . . 1 . . variables. Let the LM equation be Y = ? + ER' where k and l are income and interest sensitivity of money demand, respectively, and M0 is real money balances. Ifb = 0.7, g = 100, A = 252, k = 0.25, l = 200, and M0 = 176, then a) Write the IS-LM system in matrix form. (5 Marks) b) Solve for Y and R by matrix inversion. (5 Marks) (Use decimals instead of fractions for results, with 2 digits after the decimal point.)