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This is a difficult question. can you please help me out and show steps. thank you. (25 points) Suppose that desired consumption and investment are

This is a difficult question. can you please help me out and show steps. thank you.

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(25 points) Suppose that desired consumption and investment are given by ad = 1275 + 0.5(Y T) 200w Id = 850 2001'. Real money demand is given by L = 051' 200(r + we). (a) Suppose that G = 450 and that the government runs a balanced budget with T = G. Give an expression for the IS curve: for any given interest rate 1\" nd an equation that gives the output Y such that the goods market is in equilibrium. (b) If M = 9100 and are = 0 nd an expression for the LM curve: for any given interest rate r and price level P nd an equation that gives the output Y such that the asset market is in equilibrium. For the remainder of this question assume that I7 = 4600 (d) What is the general equilibrium price level? (e) Suppose the government announces a large government spending cut: G' decreases from 450 to 350 wtih T adjusting so that the government maintains a balanced budget. In the short run, what will be the interest rates and output (assuming prices are sticky)? (f) What will be the price level, interest rates and output in the long run once prices adjust? (g) Suppose the Federal Reserve wants to keep output at full employment level in the short run. How much would it need to change the nominal money supply in response to the change in G in order to keep output at Y (again assume prices are sticky)? (h) Depict this graphically. Draw the following curves: Full Employment with label FE, IS Curve with label IS, IS Curve after decreases in G with label IS', LM Curve with label LM, and the LM Curve after the Policy Change in (f) with label LMP

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