C=200+ 2. Goods market 0.8YD Financial market M-4200 (nominal money supply) t=0.2 (tax rate=20% and T=tY) I-600-5000i+0.3Y P=3 (price) (M/P)=0.2Y+400-4000i G=800 A. Derive the IS and LM function. 10% B. Following A.), measure the new equilibrium output (Y), interest rate (i), private investment (I) and the multiplier. 5% C. Following A.), if the government increases public expenditure by 200, calculate the new equilibrium output, interest rate, private investment? What is the budget condition relative to A.)? (more surplus or more deficit)? 5% D. Following A.), what is the new equilibrium level of output, interest rate, and private investment if the Central bank increases the nominal money supply to 4500? 5% E. Plot the answers of A.), B.) and C.) in one diagram and A.), B.) and D.) in another diagram. (total 2 diagrams) 10%

C=200+ 2. Goods market 0.8YD Financial market M-4200 (nominal money supply) t=0.2 (tax rate=20% and T=tY) I-600-5000i+0.3Y P=3 (price) (M/P)=0.2Y+400-4000i G=800 A. Derive the IS and LM function. 10% B. Following A.), measure the new equilibrium output (Y), interest rate (i), private investment (I) and the multiplier. 5% C. Following A.), if the government increases public expenditure by 200, calculate the new equilibrium output, interest rate, private investment? What is the budget condition relative to A.)? (more surplus or more deficit)? 5% D. Following A.), what is the new equilibrium level of output, interest rate, and private investment if the Central bank increases the nominal money supply to 4500? 5% E. Plot the answers of A.), B.) and C.) in one diagram and A.), B.) and D.) in another diagram. (total 2 diagrams) 10%