5. (12 points) Consider the following closed economy (chapter 3) where GDP (Y) is 6,200. Consumption (C) is given by C = 200 + 0.8(Y - T). Investment (I) is given by I = 1,200 - 200r, where r is the real rate of interest. Taxes (T) are 1000, and government spending (G) is 1200.

a) What are the equilibrium values of consumption, private saving, public saving, and national saving?

Now, find the new equilibrium values of income in response to the following shocks (part b and c should be answered separately). Illustrate graphically (for each part), making sure to label the axes, curves, the initial equilibrium values, and the values after the shock.

b) A reduction of G from 1200 to 1000, to balance de budget.

c) Technological innovations that change the investment function to I = 1,400 -150r. (here, you should use the initial values for G and T)