Consider an economy described by the following equations:
Ys = AK^(1/3)L^(2/3)
C = 4 + 0.5(Y-T)
I = 10 - 100r
(M=P)d = Y-200r
A =10, K=2, L= 2, T=4,G=4,M=40.
a. Find the equations describing the LRAS line and IS curve. Find the equilibrium Y and r. Is this the long run or the short run equilibrium?
b. Find the equation describing the LM curve. Note that since I did not give you a specic P (and the LM curve is always drawn given a specic P), you will end up with an equation in three unknowns (Y,P,r).
c. Using your answer to a) and the LM equation, nd the equilibrium price level P.
d. Using the IS-LM equations, and the AD equation (it will be a relationship between P and Y).
e. Using the LRAS-AD equations, and the equilibrium price P.