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 (i) (4 marks). Ans: We want Y to rise from 5,925 back to 5,975. We know that C = 100 + 0.8(Y-T), G = 550, T = 550, NX = 20, so set Y = C + I+ G + NX = 5,975 and solve for I, I = 965. This is sensible since we want I to rise and offset the drop in C confidence. Now solve for i that would give I = 965, and i = 0.0233, or 2.33%. This is also sensible because the BOC would need to drop i from 2.5% to 2.33% in order to increase I, increase jobs, increase Y, etc... just as you have described before in words, but now we know the actual amount of interest cut that is required