Suppose an economy is given by the following equations:

C = 100 + 0.75Yd

I = 125 5i

G = 100

T = 100

(M/P) = 50

Y L(i) = 0.1Y 2i

Yn = 1250

(Yn is the natural level of output)

Using the above information, answer the following.

a). Derive the IS and LM curves.

b). Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom? What policy should the government (administration) pursue? Explain your answer specifically explaining what information leads you to think the economy is in a boom or a recession.

c). Suppose that the central bank decides to increase money supply to (M/P) = 150. Find equilibrium Y and equilibrium i. Is the economy in a recession or a boom? What policy should the central bank and/or the government (administration) pursue? Explain your answer specifically explaining what information leads you to think the economy is in a boom or a recession and what policy should be pursued.