1. Y=A(0.001 IN-0.0025N^2)
2. A=2
3. K=5000
4. N^S=55+10(1-t)w
5. C = 300 + 0.8(Y - T) - 200r
6. T=20=0.5Y
7. I=258.5-250r
8. G=50
9. L=0.5Y-250i
10. M=9150
11. Rate of inflation=0.02

Now using this information, answer the following:

(a)Briefly explain the meaning of each equation in the above model. What are the values of C, Ir, L, Nsand . Give economic interpretation of each.

(b)Add all relevant identities and equilibrium conditions to complete the model. List all the endogenous and exogenous variables.

(c)Derive the equations of the IS, LM and AD curves. Determine the numerical values of the slopes and intercepts of these curves and interpret each?

(d)Determine the equilibrium levels of all endogenous variables under the assumptions of the classical macroeconomic framework.

(e)Beginning from the initial classical equilibrium, suppose that the government expenditures decrease by 18. Calculate the short run and long run impact of this policy on all endogenous variables.

(f)Compare the equilibrium positions in (d) and (e) in one graph indicating all points.

(g)Beginning again from the initial classical equilibrium, suppose that the economy's capital stock reduces to 4685. How will this change affect macroeconomic equilibrium?

(hCompare the equilibrium positions in (d) and (g) in one graph indicating all points.

(i)Discuss (theoretically) any policy options (along with their underlying assumptions) which the government might use to restore long run macroeconomic equilibrium back to its original state. Draw relevant graphs to accompany your answer.

(j)Suppose that in Equation.9 of the model. How will it affect the shape of the money demand and the LM curve. Will the fiscal policy of part (e) have the same effect as calculated above or any different? Explain using graphs and multipliers.