In the IS − LM model, the goods market is described by:
Y = C + I + G
C = 500 + 0.75(Y − T)
I = 1500 − 100r
G = 2500
T = 2000
M = 30000
P = 4
L(r, Y ) = Y − 500r
a) Write an expression that describes equilibrium in the goods market
b) Write an expression that describes equilibrium in the market for liquidity
c) Compute equilibrium output and the equilibrium interest rate.
d) By how much would the IS curve shift if taxes were cut by 1000?
e) Suppose the Federal government wanted to reduce output. Give two actions they could take.
f) Suppose the Federal Reserve Bank wanted to increase output. Give one action they would take.