INTERMEDIATE MACRO ECONOMIC

QUESTION ONE

a) Given the following equations for a certain economy:

Y = C + I + G + X (Income identity)

C =100 +0.9Y^d (Consumption function)

I = 200 -500r (Investment function)

X = 100 - 0.12Y -500r (Net export)

G = 200 (Government purchases)

T = 0.2 (Tax rate)

L = Y-100r (Real money demand)

M = 800 (Real money supply)

Required

i)Derive equations for IS and LM curves

ii)Determine the r and y pair at which the two markets are clearing

iii)Compute the values of C, I, X and L

b) What is the difference between the classical and Keynesian supply curve