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Unformatted text preview: r = f(Y) ]. b) Derive the LM curve as a function of Y and M/P . [Express it in the form r = f(Y,M/P) ]. (12) Consider the following economy: C = 1000 T + 0.6Y - 200r I = 1000-300r G = 1000 T = 0.1Y L = 0.6Y -600(r+ e ) = 6000 P e = 2.5 e = 0 5000 = Y You may want to use the following fact: a ac b b x c bx ax 2 4 by given is equation this of solution a then , If 2 2 + = = + + a.) Derive the aggregate demand schedule for this economy. b.) Suppose that the misperceptions theory holds, so that the short run the AS curve is given by ) ( 500 e P P Y Y + = . Determine the equilibrium price level and output in this economy in the short run. c.) What will be the short run price level if the central bank increases the money supply (unexpectedly) to M = 6600?...
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- Spring '08