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Consider the following IS-LM model:

I = 150 + 0.25Y -1000i

G = 250

T = 200

a. Derive the IS relation.

b. Derive the LM relation.

c. Solve for the equilibrium real output.

d. Solve for the equilibrium interest rate.

e. Solve for the equilibrium values of C and I and verify the value you obtained for Y by adding up C, I, and G.

f. Now suppose that the money supply increases to . Solve for Y, i, C, and I, and describe in words the effects of an expansionary monetary policy.

g. Set  equal to its initial value of 1,600. Now suppose that government spending increases to G = 400. Summarize the effects of an expansionary fiscal policy on Y, i, and C.

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