Question: Assume that the consumption function is given by C = 200 + 0.5 ( Y - T ), and the investment function is I =

Assume that the consumption function is given by C = 200 + 0.5 (Y - T), and the investment function is I = 1,000 - 200r, where r is measured in percent, G equals 300, and T equals 200.

a. What is the numerical formula for the IS curve?

b. If r is 1 percent, what is I? What is Y?

c. Suppose that the government increase spending (G). Use the IS-LM model to illustrate graphically and explain the policy impact.

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