1. How would an increase in infrastructure spending affect capital stock? Using the classical theory of output determination, illustrate and explain how this change in capital stock would affect national income (GDP). Using the neoclassical distribution theory, illustrate and explain the impact of this change in capital stock on the real wage and the real rental price of capital. 2. Assume that GDP (Y) is 7,500. Consumption (C) is given by the equation C = 600 + 0.8(Y - T) - 100r. Investment (I) is given by the equation I = 1,000 - 200r, where r is the real rate of interest in percent. Taxes (T) are 1,000 and government spending (G) is also 1,000. a. Derive the equation for national saving. Is the saving schedule vertical or upward-sloping? What are the equilibrium values of C, I, and r? b. What are the values of private, public, and national saving? c. If government spending rises to 1,300, what are the new equilibrium values of C, I, and r? d. Illustrate what happens to S, I, and r using the loanable funds framework. 3. Suppose that corporate downsizing and lack of job security in Europe cause consumers to spend less and save more. Using the long-run model of a large open economy and assuming that both Europe and the U.S. are two large open economies, illustrate and explain how this change in consumer preferences in Europe affects r, CF, I, , and NX in the U.S. economy. 4. Suppose that the Fed reduces the growth rate of money supply (). Using the quantity theory of money and the Fisher equation, explain how this change in the money growth rate might affect the inflation rate (), the growth rate of real GDP (), the real interest rate (), and the nominal interest rate () in the long run