Consider the following economy:

Assume the SRAS is horizontal at the current price level.
a. Calculate the full-employment values of the real interest rate, the price level, consumption, and investment.
b. Now suppose that government purchases are increased to 250, with no change in current taxes. Assuming that the economy was initially at full employment, what are the new values of output, the real interest rate, the price level, consumption, and investment in the short run? in the long run?
c. Repeat part (b) for an increase in the money supply to 7200. Assume that G = 150.

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Desired consumption C 325+0.5Y-T)-500 Desired investment 200-500 Government purchases G=150. Taxes Real money demand L=0.5 Y-1000r. Money supply Full-employment output Y=1000. T= 150. M = 6000.