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The following equations describe an economy.
Y = C + I + G
C = 400 + 0.5(Y-T)
I = 250 -5r
G = 500
T = 1500
(M/P)d = 4Y -40r
M = 3600
P = 3
a.) Identify each of the variables and briefly explain their meaning.
b.) Use the relevant set of equations to derive the IS curve. Graph it on an appropriately labeled graph.
c.) Use the relevant set of equations to derive the LM curve. Graph it on an appropriately labeled graph.
d.) What is the equilibrium level of income and the equilibrium real interest rate?
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