Assume following (equations) summarize/represent structure of economy. If:

C=Ca + 0.75(Y-T)

Ca=800-25r

T=400+0.2Y

Ip=600-25r

G=1200

(M/P)^d = 0.2Y-20r

M^s/P=700

1. Illustrate what are equations for IS and LM curves? Illustrate What is equilibrium level of income and interest rate? What if mix of fiscal and monetary policies is changed. Te money supply is increased by 100 while government spending reduced by 250:

2. Does investment increase, decrease or remain unchanged? Why/calculate.

3. Does consumption increase, decrease or remain unchanged? Why/calculate.

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