Question 5. ( 15 points) Consider an economy described by the following data: = $3.25 trillion = $1.3 trillion G = $3.5 trillion T = $3.0 trillion NX = -$1.0 trillion = 1 mpc = 0.75 d = 0.3 X = 0.1 a. Derive simplified expressions for the consumption function, the investment function, and the net export function. b. Derive an expression for the IS curve. c. If the real interest rate is r = 2, what is equilibrium output? If r = 5, what is equilibrium output? d. Draw a graph of the IS curve showing the answers from part (c) above. e. If government purchases increase to $4.2 trillion, what will happen to equilibrium output at r = 2? What will happen to equilibrium output at r = 5? Show the effect of the increase in government purchases in your graph from part (d). An increase of government spending of $0.7 trillion will lead to an 0.7/(1 - 0.75) = $2.8 trillion increase in equilibrium output at any given interest rate. Thus, the IS curve will shift horizontally to the right by $2.8 trillion