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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)
MD = (0.8Y - 3,000i) (Money demand)
Also assume that government spending G = $200, the tax rate t = 0.3333, and the money supply MS = $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?
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