3 Consider the following model of an economy, open to international trade. Note that this economy is operating at its long run equilibrium. Consumption is an increasing function of disposable income and net exports are a decreasing function ofdisposable income. Investment is a decreasing function of the real interest rate. 17=F(I?,1V) C = C(YTA) I=I('r) NX = NX(Y TA) Y = c + I + G' + NX a) Suppose that the government decides to raise the amount of taxes it collects but does not change its spending. What can you say in words about the impact of this disturbance on total savings, 5, the interest rate, r, total investment, domestic investment and foreign investment. Use the loanable funds market diagram to support your conclusions. (14 points) b) Now suppose that the same tax increase in part (a) above reduces investor confidence in future profits. Again, using the loanable funds market diagram to support your conclusions, what can you say about the effects of this policy on S, the interest rate, r, the total level of investment, domestic investment and foreign investment. (14 points)