Question 4 (14 marks) The following equations describe an economy. Y = C + I + G. C = 100+ 0.5(Y T) I = 200 10r (M/P)' = Y 40r G= 250 T = 100. M = 2000. P= 4. a. b. c. Derive the equation of IS curve. Show your working. (3 marks) Derive the equation of LM curve. Show your working. (3 marks) What is the equilibrium level of income and the equilibrium interest rate? (2 marks) Explain in words, how monetary policy can fight recession. (3 marks) Suppose the money demand of an economy becomes very interest inelastic. Evaluate the effectiveness of monetary policy to fight recession in this economy. (3 marks) d. e