A small open economy has the following parameters: C 250+0.25 (Y-1), 1=50₂ 30r Real money supply Y-400r, Government spending is 500, money supply is 2520, price is 6, and the government is with equal budget. a) Find the equilibrium interest rate and level of income. (Sp) b) Draw IS and LM curves. (Sp) level of income? What is the tax multiplier? (Assume the money supply is held constant) c) If government increases taxes by 70 percent, what are the new equilibrium interest rate and (10p) Answer:
