SECTION B

Answer all questions in the section

Assume that the following equations summarize the structure of the economy.

$C=Ca+0\mathrm{.}8(Y-T)$

$Ca=260-10r$

$T=200+0\mathrm{.}2Y$

$(\frac{M^s}{P})=300$

$(\frac{M^d}{P})=0\mathrm{.}025Y-25r$

$I=1900-40r$

$G=1800$

$Nx=700-0\mathrm{.}14Y$

a$.$ Derive the equation for the LM curve. $(3$ marks$)$

b$.$ Derive the equation for the IS curve. $(3$ marks$)$

c$.$ Derive the equation for Aggregate Demand $($AD$)$ Curve. $(3$ marks$)$

d$.$ What is the equilibrium Output $($Y$)$ and equilibrium interest rate $($r$).(4$ marks$)$

e$.$ If the money supply decreased to $290,$ what are the new values of equilibrium output $($ Y $)$

and interest rate $($r$).(4$ marks$)$

f$.$ Illustrate the result of part $($e$.)$ on a graph $(3$ marks$)$