Consider an economy described by the following data:

C = $3.25 trillion I = $1.3 trillion G = $3.5 trillion T = $3.0 trillion NX = - $1.0 trillion f = 1 mpc = 0.75 d = 0.3 x = 0.1

a. Calculate simplifi ed expressions for the consumption function, the investment function, and the net export function.

b. Calculate an expression for the IS curve.

c. If the real interest rate is r = 2, then what is equilibrium output? If r = 5, then what is equilibrium output?

d. Draw a graph of the IS curve showing the answers from part

(c) above.

e. If government purchases increase to $4.2 trillion, what will happen to equilibrium output at r = 2?

What will happen to equilibrium output at r = 5?

Show the eff ect of the increase in government purchases in your graph from part (d).