Consider the following IS-LM model.

1) (4 points) Derive the IS curve from the following information: Consumption is given as = 0.5( ), investment is given as = 500 1000, = 200, = 200.

2) (2 points) Suppose that the reserve-ratio is 0.25 and the cash-deposit ratio is also 0.25. Calculate the money multiplier.

3) (5 points) Suppose that the price level of this economy is fixed at 1. Further suppose that the money demand is given as = 2000 and the monetary base (B) is given as 320. Derive the LM curve.

4) (3 points) Using your responses above, calculate the equilibrium values of output (Y) and the interest rate (r) of this economy.

5) (6 points) Suppose the monetary base increases to 400. Which curve, among the IS and LM, is affected by this? Calculate the new equilibrium values of output (Y) and the interest rate (r) of this economy.