Desired consumption and investment are
Cd = 360 - 200r + 0.10F;
ld = 120 - 400r.
As usual, Y is output and r is the real interest rate. Government purchases G are 120.
a. Find an equation relating desired national saving 5d to r and Y.
b. What value of the real interest rate clears the goods market when Y = 600? Use both forms of the goods market equilibrium condition. What value of the real interest rate clears the goods market when Y = 640? Graph the IS curve.
c. Government purchases rise to 132. How does this increase change the equation for national saving in part (a)? What value of the real interest rate clears the goods market when Y = 600? Use both forms of the goods market equilibrium condition. How is the IS curve affected by the increase in 07?