Consider a closed economy with full-employment output Y = 2100. Government purchases are given by G = 200, and lump-sum taxes by T = 200. TR = 10. Desired consumption and desired investment are given by:
\(C^{d}= 350 + .7(Y-T+TR)-70r\)
\(I^{d}= 300 -120r\)
(a) Find the equilibrium real interest rate r. Find the equilibrium levels of consumption, investment, national saving, private saving, and government saving.
(b) Suppose transfers increase to TR = 40. Find the new equilibrium real interest rate and the corresponding levels of consumption, investment, national saving, private saving, and government saving.