$1.(20$ pts$).$

$=3$ mpc $=0\mathrm{.}75$

$=5$ c $=0\mathrm{.}4$

$=2$ d $=0\mathrm{.}4$

$=2$ x $=0\mathrm{.}2$

$=1\mathrm{.}5=0$

$($a$)$ Using the data in the table above, write down the equation for the IS curve.

$2$

$($b$)$ Assuming that, as a result of depreciation of the U$.$S$.$ dollar, autonomous net exports go

up by $1\mathrm{.}5,$ i$.$e$.,1=3,$ write down the equation for the new, IS $1,$ curve.

$($c$)$ Plot the IS and IS$1$ on the same graph. Explain which way the IS curve shifted as a result

of this increase in the autonomous net exports.

$2.(20$ pts$).$ Consider the information in the table below:

$=3$ mpc $=0\mathrm{.}8$

$=4$ c $=0\mathrm{.}5$

$=2$ d $=0\mathrm{.}4$

$=2$ x $=0\mathrm{.}1$

$=1=1$

$($a$)$ Given the information in the table above, write down the equation for the IS curve. Assuming

that the MP curve is $=4+2,$ write down the equation for the AD curve.

$3$

$($b$)$ Assuming that because of better bank oversight and more transparency, financial frictions

go down, so that $1=0,$ write down the equation for the new, IS$1,$ curve. If the MP curve is

the same as in part $($a$),$ write down the equation for the AD $1.$

$4$

$($c$)$ Plot the AD and AD$1$ on the same graph. Explain which way the AD curve shifted and why as

a result of this decrease in financial frictions.

$3.(10$ pts$).$ Suppose real output, Y$,$ is $10,000,$ and the demand for real money balances is $=$

$-25$i$.$

$($a$)$ Find the equilibrium interest rate, i$,$ if the money supply $,$

$=2,250.$

$5$

$($b$)$ Find the new equilibrium interest rate, i$1,$ if the money supply decreases to $2,200,$ i$.$e$.,$

$,1$

$=2,200?($Assume that output, Y$,$ stays the same at $10,000).$

$($c$)$ Plot the money demand, $,$ the $$old$$ money supply, $$

$,$ and the $$new$$ money supply,

$,1$

$,$ on the same graph. What happened to interest rate when the Fed decreased the

supply of money?