In: Economics

Suppose the followings represent the goods market: C = C0 + c(Y-T) (Consumption Function) I =...

Suppose the followings represent the goods market:

C = C0 + c(Y-T) (Consumption Function)

I = I0 - d.i (Investment Function)

G = T = T0 (Government’s Balanced Budget Condition)

Suppose the followings represent the financial markets:

Md = a - b.i (Money Demand Function)

Ms = M0 (Money Supply Function)

i) Please compare the Money Demand Function represented above with the standard Money Demand function (referred in your book) and discuss about similarities and differences?

ii) Describe the equilibrium in both financial and goods market by solving the system (Goods and Financial Markets) for equilibrium i and Y?

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