Problem Set 6 - solutions.pdf - Problem Set 6 Due Alexandra...

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Problem Set 6: Due 03/28/2019Alexandra SolovyevaECON-102: Intermediate MacroeconomicsQuestion 1.[10 points] An economy is initially described by the following equations:C= 500 + 0.75(Y-T)I= 1000-50rMP=Y-200rG= 1000T= 1000M= 6000P= 2(a) Derive and graph the IS curve and the LM curve. Calculate the equilibrium interestrate and level of income. Label that point A on your graph.
(b) Suppose that a newly elected president cuts taxes by 20 percent. Assuming the moneysupply is held constant, what are the new equilibrium interest rate and level of income?

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