In a certain economy, the components of planned spending are given as:

C^d=600+0.8(Y-T)-350r, I^p=200-450r, G=250, NX=20, T=300

a)Find the relationship between planned aggregate expenditure and the real interest rate, r, and output, Y, in this economy.(2 marks)

b)The real interest rate, r, is set by the Reserve Bank to equal 0.05 (5 per cent). Find the short-run equilibrium output.(4 marks)

c)Suppose potential output (Y*) is 4100. The Reserve Bank has set the real interest rate equal to 5 per cent. At that real interest rate, what is the output gap? What should the Reserve Bank do to eliminate the output gap and restore full employment?(6 marks)