Solving the equilibrium Y and r using ISLM model.
1.Suppose that you have the following equations for the IS-LM model
IS: Y = 1700 - 100r.
LM: Y = 500 + 100r.
Where Y is the national income or GDP and r is the interest rate. Find out the values of r and Y from these equations. Then place the values in a graph of the IS-LM model.
2.Assume that there is an increase in the money supply. This will cause the LM curve to shift to the right which lowers the interest rate. Based on the latter, illustrate what will happen in the AS-AD model in the long-run? Explain in full details.