e)Suppose the Bank of Canada (BOC) is trying to reverse this adverse effect on the economy. For simplicity, it is not concerned about inflation for now. The BOC can drop the bank rate in order to stimulate investment spending (I). Suppose you work for the BOC and your boss Mark Carney has just dropped by your office to ask you what he should do.

You need to find the new interest rate that is required to stimulate I. The increase in I has to be sufficient to push the overall Y level back to the original Y level that you have found in a).

Hints:You already know what the value of Y has to be. Now determine what the new I must be in order to offset the drop in consumer confidence, then find theithat is required to achieve this new I.