10. Consider an economy described as follows:

Y 5 C 1 I 1 G.

Y 5 8,000.

G 5 2,500.

T 5 2,000.

C 5 1000 1 2/3(Y2T ).

I 5 1,200 2 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.