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Question 4 An economy is described by the following equations: c = 15000+0.5(Y-T) _ 40000r, IP=8000-20000r, G=7000, X: 0, M=_1 800, T=T=8000, Y*= 40000 a)

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Question 4 An economy is described by the following equations: c = 15000+0.5(Y-T) _ 40000r, IP=8000-20000r, G=7000, X: 0, M=_1 800, T=T=8000, Y*= 40000 a) Find a numerical equation relating planned aggregate expenditure to output and to the real interest rate (Given PAE=C+IP+G+NX) (7 marks) b) What the Reserve Bank should set the real interest rate to eliminate output gap if any? (8 marks)

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