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Consider an economy described as follows: Y = C + I + G Y = 8,000...

Consider an economy described as follows:

Y = C + I + G

Y = 8,000

G = 2,500

T = 2,000

C = 1,000 + 2/3(Y - T)

I = 1,200 – 100r

a. In this economy, compute private saving, public saving, and national saving.

b. Find the equilibrium interest rate.

c. Now suppose that G is reduced by 500. Compute private saving, public saving, and national saving.

d. Find the new equilibrium interest rate.

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