An economy has the following variables:

Goods Market:

Y=500

C=25 + 2/3 (Y-T)-100r

I=120-300r

G=75

T=50

a) Graphically draw (a rough sketch is fine) of the goods market. Assuming you start at the closed economy equilibrium what is the initial r, S, I?

b) Suppose that there is a reduction of G by 25, What is the new r, S, I? Show this graphically.

c) Starting with the initial information suppose instead that there is a reduction of I by 25, What is the new r, S, I? Show this graphically.