## Answers

IS curved shows all combinations of income (Y) and real interest rate (r), for which the goods market is in equilibrium. LM curve shows all combinations of income and real interest rate, for which the monkey market is in equilibrium. Aggregate demand is the monetary value of all final goods and services produced within the boundaries of a nation. It includes consumption spending, investment spending, government spending, and net exports. The following information is given: C = 200 + 0.8(Y - T) - 500r I = 200 - 500r M^d/P = 0.5 Y - 250(r + Pi^e) Pi^e = 0.10 T = 20 + 0.25 Y (a) Derive the expression for IS function as follows: \r\n Y = C + I + G Y = [200 + 0.8(Y - T) - 500r] + [200 - 500r] + G Y = [200 + 0.8(Y - 20 - 0.25Y) - 500r] + [200 - 500r] + G Y = 200 + 0.8 Y - 16 - 0.2 Y - 500r + 200 - 500r

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