Question: Consider the following IS/LM Model: Y = C(Y D ) + I(i) + G, 0 < C Y < 1, I i < 0, (Goods

Consider the following IS/LM Model: Y = C(Y^D) + I(i) + G, 0 < C_Y < 1, I_i < 0, (Goods Market) Y^D= Y T, (Disposable Income) M/P = L(Y, i), L_Y > 0, L_i < 0, (Money Market) where G and T are government spending and tax rate, respectively.

A. Assume that T is constant. Calculate the effect of the change in government spending on the equilibrium interest rate and output level.

B. Assume that G is constant. Calculate the effect of the change in the tax rate on the equilibrium interest rate and output leve

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