1.Assume that GDP (Y) is 6,000. Consumption (C) is given by the equation C = 600 + 0.6(Y - T) - 100r. Investment (I) is given by the equation I = 2,000 - 100r, where r is the real rate of interest in percent. Taxes (T) are 500 and government spending (G) is also 500.

National Saving (S) = Y- C - G

S= Y - [ 600 + 0.6 (Y-T) ] - 500

S= Y- 600 - .06 (Y - 500) - 500

S= Y- 1100 - .06 (Y- 500) - 300

National Savings (S) = .4Y - 800

Current Equilibrium for R= 4

Current Equilibrium for C = 3900

Current Equilibrium for I = 1600

Question 1 : If Government spending rises to 1,000 what are the new equilibrium values for C, I, and R?

Question 2.) Illustrate what happens to S, I, and r using the loanable funds framework.