Assume that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 1,200 + 0.3(Y - T) - 50r, where r is the real interest rate. Investment (I) is given by the equation I = 1,500 - 50r. Taxes (T) are 1,000 and government spending (G) is 1,500.

1. According to this model, if income increases by 1, how much does consumption change? (2 points)
2. If the real interest rate r increases by 1 (per cent), what happens to total consumption? Can you offer a reason to explain why this is a plausible assumption? (2 points)
3. Solve for the equilibrium values of C, I and r. (4 points)