For the economy described below:

$C=2,500+0\mathrm{.}75(Y-T)-12,000r$

$I^P=1,800-12,000r$

$G=2,000$

$Nx=0$

$T=3,200$

a$.$ Suppose that potential output $Y^{**}$ equals $10,800.$ What real interest rate should the Fed set to bring the economy to full employment? You may take as a given that the multiplier for this economy is $4.$

Instructions: Enter all your responses as whole numbers.

Real rate of interest: $\%$

b$.$ Suppose that potential output $Y^{**}$ equals $7,920.$ What real interest rate should the Fed set to bring the economy to full employment?

You may take as given that the multiplier for this economy is $4.$

Real rate of interest $\%$

c$.$ Show that the real interest rate determined in part a sets national saving equal to planned investment when the economy is at potential output. This result shows that the real interest rate must be consistent with equilibrium in the market for saving when the economy is at full employment.

Planned investment $P=$

National saving $S=$

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