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In a closed economy....
C =500 + 0.75(Y-T) (2)
I = 375 - 25r (3)
T = 500 (4)G = 500 (5)
Ms=Md (6)
Ms =1000 (7)
Md/P = L(r,Y) = 0.5Y - 50r
Calculate the long-run equilibrium values of r and P, assuming that the potentiallevel of output (Y*) is equal to 3500 monetary units. Use the IS/LM and AD/ASmodels to illustrate graphically the short-run and long-run equilibrium, and to explainhow the economy moves from the short-run to the long-run equilibrium, if the two aredifferent.
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