The following equations describe an economy. (Think of C, I, G etc as being measured in billions and i as a percentage ; a 5% interest rate implies i= 5)

C=0.8(1-t)Y

t=0.25

I=900-50i

G(autonomous) = 800

L= 0.25Y - 62.5i

M/P = 500

• What is the equation that describes the IS curve?
• What is the general definition of the IS curve?
• What is the equation that describes the LM curve?
• What is the general definition of the LM curve?
• What are the equilibrium levels of income and the interest rate?