Question 2 (35 points) Chapters 7, 11 & 12 The closed economy of Temptation Island is characterized by the following equations: Consumption: C = 6000 + 0.85(Y - T) Investment: I = 1500 - 300r Government spending: G = 5000 Taxes: T = 4500 Real money demand: L = 0.65Y 5001 Expected inflation: n* = 0 Production function: Y = K"2L'2 The nominal money supply = 35000 Note: Interest rates, both i and r, are expressed in percentage points, ie., if r = 5.5, then the real interest rate is interpreted as being equal to 5.5%. Suppose the IS-LM meodel can be to describe Temptation Island and answer the following questions. Keep your answer to at least THREE decimal points if necessary. a) b)