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2. (1,75 p.) Consider a closed economy with fixed prices and wages. Suppose the consumption function takes the form C-400 +0.2(Y-T), the invest function is I- 170-10i. Central Bank sets interest rates that results in the following LM curve i-0.02Y-10. Initially G T-100. Suppose that govemment controls both fiscal and monetary policy. The government wishes to increase output by 10% but to keep the budget in balance and investment unchanged. Describe in detail the combination of policies (specify the instruments used) that the government could undertake to achieve its goal and find the required changes numerically.
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