Using the model in example 13.3, and assuming r∗ = 18, all other parameters the same, then establish that

(i) the initial equilibrium is (s,p) = (104,104)

(ii) the characteristic roots are r = 0.04422415 and s = −0.0452242

(iii) the saddle path equations are:

(a) unstable arm: p = 101.70034 + 0.02211208s

(b) stable arm: p = 106.35166 − 0.0226121s

(iv) for a rise in the money supply to 110 the intercepts of the saddle paths only alter to 106.58978 for the unstable arm and to 111.46472 for the stable arm, respectively.