Let, the structural equations for the money market and product market in a hypothetical economy are given as follows: I = 400 4000 i; Mt = 0.5 Y T = 200 + 0.2Y Msp = 200 2000 i; C= 400 + 0.75(Y T) M…

Let, the structural equations for the money market and product market in a hypothetical economy are given as follows:

I = 400 - 4000 i; Mt = 0.5 Y T = 200 + 0.2Y

Msp = 200 - 2000 i; C= 400 + 0.75(Y-T) M = 800

G = 500 i.Determine equilibrium rate of interest and output. ii. What will be the simultaneous effect on the equilibrium rate of interest and output when government increases its planned expenditure by Rs. 100 billion and central bank increases money supply by Rs. 200 billion?

iii. Are these fiscal and monetary measures effective to control inflation? Give your comments.