Consider an economy described by the following data:

C = $1.2 trillion

I = $2.7 trillion

G = $4.1 trillion

T = $4.0 trillion

NX = $0.0 trillion

f = 2

mpc = 0.8

d = 0.35

x = 0

Assume that the Federal Reserve controls the interest rate and sets the interest rate at 1.0%. What is the equilibrium level of output?

Assume that there is an increase in government spending from 4.1 trillion to 5 trillion without an increase in taxation. What will this do to equilibrium output? If the Federal Reserve can set the interest rate, then at what level should the interest rate be set to keep output from changing? This answer should be rounded to the nearest two decimal places.