The following equations describe a small closed economy. Figures are in millions of dollars; interest rate (i) is in percent per annum. Assume that the price level is fixed. Goods Market Money Market C = C. + CYD (Private consumption) (M/P) : = KY - hi (Demand for real balances) YD = Y + IR - I (Disposable income) (M/P)' = M,/P (Real money supply) I = I. + tY (Total taxes) (M/P) = (M/P. (Money mkt. eq. condition) I = Io - bi (Private investment) G = Go, TR = TRo (Govt. Expenditure & Transfers) Y=C+I+G (Goods mkt. eq. condition) Endogenous Variables: C, YD, I, I, Y, i, M and M Exogenous Variables: Co = 250, To = 150, Io = 300, Go = 350, TRo = 100, Mo =500 and P =1 Parameters: c = 0.80, t = 0.25, b = 50, k = 0.25 and h =62.5 Policy variables: Fiscal policy: (G, t and TR), Monetary policy: (Mo, P) a) Derive the equations for IS and the LM curves. (4 marks) b) Determine the equilibrium level of income (Y*) and the rate of interest (i*). (2 marks) () Suppose government increases its expenditure (G) by 20 percent of the current levels. Calculate the change in the level of income (AY) and the rate of interest (Ai) that results from this fiscal expansion. (2 marks) d) Determine the magnitude of crowding-out of private sector investment that result from the above fiscal expansion. (2 marks)