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An economy has a full-employment output, Y, of 6000. Government purchases, G, are 1200. Desired consumption...

An economy has a full-employment output, Y, of 6000. Government purchases, G, are 1200. Desired consumption and desired investment are: Cd =3600-2000r+0.1Y, and I d =1200-4000r, where r is the real interest rate. a) Graphically draw (a rough sketch is fine) of the goods market. Show graphically what would happen to savings, investment, and the real interest rate if the government decreases expenditure. b) From the given information what is the equation for the desired level of savings? c) What is the equilibrium level of savings, level of investment, and the real interest rate? d) Suppose the government decreases their purchases to 1100. What is the new equilibrium level of savings, level of investment, and the real interest rate?

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