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# Consider the following closed economy short-run IS-LM model with income taxation. The economy is described by equations (1) through (6): (1) C = 200

## Consider the following closed economy short-run IS-LM model with income taxation. The economy is described by equations (1) through (6): (1) C = 200 + 0.8(Y -T); (2) T = 800+0.25Y;(3) G = 500; (4) 1 = 700 - 25 r; (5) Y = C++ G; (6) M/P = 0.6Y - 60r where the nominal money supply M=600 and the price level is P = 1. (There are 25% income taxes in this model). Suppose that the business confidence index rises so that now T-900. That is, I increases by 200 units. Suppose that the Central Bank wants to maintain the interest rate constant

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