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Consider the following IS/LM Model:
Y = C(YD) + I(i) + G, 0 < CY < 1, Ii < 0, (Goods Market)
YD= Y - T, (Disposable Income)
M/P ???????= L(Y, i), LY > 0, L???????i < 0, (Money Market)
where G and T are government spending and tax rate, respectively.
A. Assume that T is constant. Calculate the effect of the change in government spending on the equilibrium interest rate and output level.
B. Assume that G is constant. Calculate the effect of the change in the tax rate on the equilibrium interest rate and output leve
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