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1 the world interest rate is r 0043 that is 43 percent and

1. The world interest rate is r* = 0.043 that is 4.3 percent and for a certain small economy, the following information applies:

C = 2,000 + 0.8(Y-T),

I = 6500 - 2,000r

NX = 2600 - 200ε

G = 3,226

T = 5000

L = 30,000 + 0.7Y - 22000r

M = 64,054

P = 1

a. Find the equation of the IS* curve

b. Find the equation of the LM* curve

c. Find the equilibrium values of Y and ε

d. Verify that S - I = NX at the equilibrium.

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Business Economics: 1 the world interest rate is r 0043 that is 43 percent and

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