Suppose that the economy is characterized by the following behavioral equations: C = 300 + 0.5 YD G = 100 T = 200 (M/P) d = Y - 2000 i The central bank sets the interest rate, i = i0 = 0.1 a) Derive the IS relation. (1 mark) b) Derive the LM relation. (1 mark) c) Solve for equilibrium real output Y, consumption C and investment I. (1 mark) d) Solve for the equilibrium real money supply. (1 mark) I = 200 + 0.25 Y -1000 i 2 e) Suppose that the government conducts expansionary fiscal policy and increase spending to 200. What will be the effect on the economy? Assuming central bank 1)hold interest rate at 0.1 and 2) allow interest rate to change. Illustrate your answer with a IS-LM graph and explain.