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(a) Given that money supply is 1400, consumption equation is represented as c= 120 + 0.7 (Y-T), investment equation is I=200-10r, where r is the real interest rate while Taxes (T) and Government expenditure are 200 and 400 respectively. The real money demand function is expressed as m/p=0.1y-100r (units in million)
(i)Solve for equilibrium real output and equilibrium interest rate (6marks)
(ii) Assume that autonomous investment increases by 300,compute the investment multiplier and analyze the new impact on income and consumption.(6marks)
iii. What is the effect of monetary policy in an economy where capital mobility is perfectly elastic? ( Hint use mundell-flemming model)
iv. The central bank is a necessary condition for deficit in a fixed exchange rate regime, discuss

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