A closed economy can be described by the long-run classical model: Y = 6Klf3L2f3 C = 7000 + 0.75(Y T) 1000r I = 4000 5001' In this economy, there are two productive factors, K and L and both factor inputs are fully employed. The stock of capital and the supply of labour are equal to 8000 and 3375 respectively. Initially, the government collects one-tenth of the longrun level of output from households as taxes and it runs a budget decit of 1000. Note: r represents the real interest rate and is measured in percentage points (for example, if r = 10, then this is interpreted as r = 10%). Keep your answers to 4 decimal points if needed. a) Compute the longrun equilibrium levels of private savings, investment, and real interest rate. Also, nd the longrun equilibrium real wage for labour and real rental price of capital. (5 points). Recently, the economy experiences a major (downward) adjustment in the stock market and the market forecasts a slowdown in economic growth. As a result, autonomous consumption and autonomous investment change by 5% and 10% respectively. b) Find the new long-run equilibrium levels of private savings, investment, and real interest rate. (4 points) c) Compare your answers in parts (a) & (b), what happens to private savings (i.e., increase/decrease/remain unchanged)? Explain, in words only, why the variable changes or remains unchanged. (6 points) d) Show your answers for parts (a) & (b) in three diagrams (that depict the loanable funds market, the labour market, and the rental market for capital in longrun equilibrium). Be sure to identify which points on your diagrams are the long-run equilibria for part (a) & (b) respectively. No written explanation is required. (6 points) e) Suppose the government wants to target the longrun level of real interest rate to 2%, nd the change in the level of government spending that will achieve the goal. (4 points)