Question: Given that: 1. Consumption, Cd = 50 + 0.5(1 - )Y - 1000r 2. Investment, Id = 350 - 1000r 3. Money demand, Md/P =

Given that: 1. Consumption, Cd = 50 + 0.5(1 - )Y - 1000r

2. Investment, Id = 350 - 1000r

3. Money demand, Md/P = 10 + 0.5Y - 2000(r + ^e)

Assume expected inflation, ,

e is 2%, nominal money supply,

M is 500, full employment output,

Y is 704, government spending,

G is 200 and the tax rate,

is 50%.

Find Price level P and real interest r

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