consider an economy specified by the

Question

Consider an economy specified by the following:

      Y = PE = C + I + G + NX                            (Income identity)

      C = 400 + 0.9YD                                      (Consumption)

      I = 200 - 1,800i                                        (Investment)

NX = 200 - 0.1Y - 200i                                      (Net exports)

M^D = (0.8Y - 3,000i)                                       (Money demand)

Also assume that government spending G = $200, the tax rate t = 0.3333, and the money supply M^S = $1,104 (and assume the price level is constant at P = 1).

a.  What is the IS curve?

b.  What is the LM curve?

c.  What are the values of income (Y) and the interest rate (i) when the IS-LM model is in equilibrium?