Consider the following IS-LM model e = a + b(1 − t)y − hr + jy a = 5 k = 0.5 md = ky − ur b = 0.75 u = 0.3 y˙ = α(e − y)

r˙ = β(md − m0) t = 0.25 α = 0.25 h = 0.3 β = 0.4 j = 0.4 m0 = 10

(i) Find y∗ and r∗.

(ii) What are the equations for the IS curve and the LM curve?

(iii) Obtain the trace and determinant of the system, and hence establish whether a stable or unstable spiral is present.