Question 1 - (40 points): Suppose that the U.S. economy can be represented by the following long run model of the economy, as studied in Chapter 3: Supply ofgoods=Y=Y =F(K,E)=3,000 Demand for goodsY=C+I+G C=100+0.8 (Y-T) T= T=500 I=310-10r G=5=600 . Given that: Disposable Income (Y -T) = 2500; Consumption C = 2100; Private Saving Sp = 400, and Government Saving Sg = -100 (a decit) I Then National Saving = 300, Investment = 300, equilibrium interest rate r = 10 a) Illustrate graphically the market for loanable funds of this economy (that is, savings and investment). Be sure to label: i. the axes; ii. the curves; iii. the equilibrium values. (6 points) Now suppose that the government decreases taxes to T=400. Calculate the new: a) Disposable Income and Consumption (3 points) b) Private saving and government saving (3 points) 0) National Saving and Investment (3 points) d) The equilibrium interest rates (3 points) 6) Illustrate graphically the impact of decreasing taxes (T) in the market for loanable funds. l3e sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction curves shift; and v. the terminal equilibrium values. (6 points) _ f) In this model, what happens to the level of output ( Y ) with this decrease in taxes? Why (what is the variable that ofEet changes in taxes)? What are the factors that change output ( Y ) in the long run? (6 points) g) Putting it all together: show the chain of events what is the impact of a decrease in taxes on? disposable income, consumption, private saving, national saving, supply of loans, interest rates, price of loans, investment, and demand for loans? And on output? (10 pomts)