Consider an economy described by the following:
C̅ = 4 trillion
I̅ = 1.5 trillion
G̅ = 3.0 trillion
T̅ = 3.0 trillion
N̅X̅ = 1.0 trillion
f̅ = 0
mpc = 0.8
d = 0.35
x = 0.15
λ = 0.5
r̅ = 2
a. Derive expressions for the MP curve and AD curve.
b. Calculate the real interest rate and aggregate output when π = 2 and π = 4.
c. Draw a graph of the MP curve and AD curve, indicating the points in part (b) above.
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