2. (45 points total - 5 points each part except part e) A closed economy has full employment level of output (Y) of 2,000. Government purchases, G, are 200, taxes (T) are 400. Desired consumption (Cd) and investment (Id) are:
Cd = 550 + 0.5(Y -T) - 600r
Id = 600 - 400r
We now have a change in the desired investment function - it is now:
Id = 570 - 400r
c) Name four reasons why the desired investment function would change the way it did.
d) Resolve for the goods market clearing interest rate and the associated levels of desired savings and investment.