Question 3 (35 points in total) Let the following equations characterize an economy: C =200 + 0.6*(Y-T) I = 400 - 4r G = 600 T = 800 In the goods market equilibrium, Y = C + I + G (M/P) = Y - 10r M'S = 4,000 P = 5 In the money market equilibrium, (M/P)S = (M/P) d a. (15 points) For this economy, derive the formulas for the IS and LM curves. Solve for the equilibrium interest rate and the equilibrium level of income Y, Then draw a graph of the IS and LM curves and show the equilibrium point on the graph. Remember to label your graph clearly. 4G = - 200 b. (15 points) Suppose government spending is cut from 600 to 400, Solve for the new IS curve and then solve for the new equilibrium interest rate and level of income, Show the new equilibrium point on the graph from part (a). Then, fill in the following three blanks: As a result of the decrease in government spending, the _ curve shifts to the left by -200. 500 c. (5 points) If the Federal Reserve's goal is to keep the(level of income constant, what type of Const monetary policy should it implement in response to the cut in government spending? Draw a brief diagram to illustrate what happens to the equilibrium interest rate and income following the Fed's monetary policy