Assume that current GDP (Y) in Utopia is8,000and based on the survey data the current level of consumption (C) is given by the following equation;

C = 450 + 0.75(DI)

The current level of private domestic investment (I) is given by the following equation;

I = 2,000 - 137.5r

whereris the real interest rate in percent. Current taxes are calculated based on following formula:

T = 1,000 +.1Y

Government spending level is fixed at;G = 2,000and current level ofNet Export = 0

a)What is the current prevailing interest rate in this economy?

b)Now assume due to technological innovation private sector increases its planned invest toI = 3000 - 150r. What will be the impact of increased investment on the real rate of interest? The impact on the economy?

c)What policy would you use to insure the interest rate would revert back to its original level?

d)Now suppose the full employment income Y is $10,000, what policy would you use to insure economy's income move from its current level of $8, 000 to its equilibrium level of $10,000. Be specific.