We use the following terminology in this part: aggregate income Y and disposable income Yd (= (1t)Y ), consumption function C(Yd), planned investment function I(r), government spending G, and taxation T = tY where t is the marginal tax rate; r% denotes the real interest rate in the economy. (Note, r is in percentage points, e.g. r = 2 means the interest rate is 2%. When doing calculations, the interest rate should not simply be inserted in decimal form. For example, if r = 5 then I(5) = 52 0.2 5 = 51.) Consider a hypothetical economy where: C(Yd) = 58 + 0.6 Yd I(r) = 52 0.2 r G = 180 t = 0.4 (represents 40%)

Questionn:

Write down an expression for the Investment-Savings (IS) Curve. (Hint: First use the AE equation to find an expression for equilibrium Y . Next, remember that the IS equation takes the form of r = ....)