4. In a far away country called Neverland, the economy has the following structure: Goods Market: C= 200+ 0.8Y - 500r I = 200 - 500r G = 196 T = 20+ 0.25Y Asset Market: M = 0.5Y - 250i M = 9890 = 0.10 Labor Market: Y = 1000 2 (a) Find the equilibrium real and nominal interest rates, price level, consumption and investment. (b) Suppose a deadly epidemic hits Neverland and the government imposes a curfew in the evenings. The consequence of this policy is a drop of 60 in autonomous consumption, that is the consumption function is now C = 140 +0.8Y - 500r. How will the real and nominal interest rate, consumption and investment change in the short-run (In the short-run prices are sticky at the level you have found in part (a).) (c) Said, a prominent economic advisor to the president of Neverland, believes in markets. He suggests an immediate increase in government spending from 196 to 220 to boost the economy. He also argues that such an increase in government spending has to be financed later on by increasing taxes and fine people of Neverland knows this fact. He claims that they will increase supply of labor, that in turn will increase the full-employment level of output to Y = 1050. He argues that people reach almost the same consumption level as before. What will be effects of this policy on consumption, investment, the real and nominal interest rates? (a) Sena, also a prominent economist, but an advisor to the opposition party in Neverland, is known for her Keynesian tendencies. She argues that the wages are fixed at efficiency wage level and no fine people of Neverland is willing to work for lower real wages and no good firm in Neverland will be hiring more workers. If she is right, what will happen to consumption, investment, the real and nominal interest rates