# find the economy’s equilibrium output and interest rate.

- Given the following information, find the economy’s IS curve and graph it.

C = 150 + .75(Y – T) I = 200 – 40r G = T = 200

- Given the following information, find the economy’s LM curve and graph it.

Ms = 130 and Md = 100 + .1Y – 10r 11.

- Using the information in questions 5 and 10, find the economy’s equilibrium output and interest rate.

- Verify that equilibrium output will be 800 (Y = 800) and the interest rate 5 percent (r = 5).

- Suppose government spending increases by 65 (from 200 to 265) financed by running a budget deficit. What will happen to output and the interest rate?

- Suppose the government raises taxes by 65. What happens to output and the interest rate? 11. Supposegovernmentspendingincreasesby65financedbyataxincreaseof65.Whathappenstooutput

and the interest rate?

- Suppose the money supply increases by 65 (from 130 to 195). What happens to output and the interest rate?

- Suppose government spending increases by 65 and this is financed by an equal increase in the money supply. What happens to output and the interest rate?

- Using IS – LM curves, show graphically what will happen to output (Y) and interest rates (r) if:

a. FED increases money supply and Congress cuts spending.

b. Both government spending and the money supply increase.

c. The FED cuts the money supply and taxes are increased.