2. In modern time, fiscal policy has become an effective instrument which allows governments to influence many macroeconomic variables. For example, policy-makers could adjust aggregate economic activities by changing the levels of taxation (revenue) and spending (expenditure). Use a closed economy (no international trade) as the model, finish the following questions.

(1) The table following shows you some macroeconomic indicators of the US in 2019.

National accounts of the United States in 2019

National income or GDP (Y)	$21.4 trillion
Total government revenue - tax (T)	$ 3.4 trillion
Total government spending (G)	$ 4.9 trillion
Marginal propensity to consume (MPC)	70% (or 0.7)

At aggregate level, demand for national income (Y) of a closed economy, can be modeled as,

Y = C(Y - T) + I + G. Here total consumption (C) is a function of MPC and disposable income as C = MPC*(Y - T). Based on the information above, how much is total investment (I) of the United States in 2019. What is percentage (%) of investment of GDP in 2019?

Note: In a closed economy, we do not consider international trade or net export (NX).

(2) In 2020, to counter the economic fallout of the COVID-19 pandemic, the US government took several economic stimulus measures. For example, the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed in March 2020. After economic stimulus packages, total federal spending spiked to $6.6 trillion in 2020.

Fiscal Year	2019	2020
Federal Spending	$4.4 trillion	$6.6 trillion
% of the US GDP	21.0%	$31.3%

How real interest rate (r) is determined in a closed economy? How the increase of federal spending would affect total national savings (S), real interest rate, and investment? Based on information given, use a proper supply-demand diagram to depict the change of real interest rate of the US in 2020. Note: Here we still assume we are in a closed economy.