Assume that the economy is characterized by the following equations:
Derive the IS, LM equations. Calculate the equilibrium Y and r.
If = 14000, is the economy in recession or expansion? If the objective of policymakers is to keep the economy at its natural output level and have a balanced budget, which combination of policies would be needed? Illustrate and explain.
C=1000+0.6(Y-T)
T=1500
G=2000
I=1100-100r
L(r,Y)=1000+0.5Y-500r
M(s)=12000
P=2
