Consider the economy described in Applied Problem 23.

a. Derive expressions for the MP curve and AD curve.

b. Assume that π = 2. What is the real interest rate and equilibrium level of output?

c. Suppose government spending increases to $4 trillion. What happens to equilibrium output?

d. If the Bank of Canada wanted to keep output constant, then what monetary policy change should occur?

Data from applied problem 23

C̅ = 3.25 trillion 

I̅ = 1.3 trillion

G̅ = 3.5 trillion

T̅ = 3.0 trillion

N̅X̅ = -1.0 trillion

f̅ = 1

mpc = 0.75

d = 0.3

x = 0.1

l = 1

r̅ = 1