Q3.Define general equilibrium and show the general equilibrium point in the IS-LM diagram. If the economy isn't in general equilibrium, what determines output and the real interest rate? What economic forces act to bring the economy back to general equilibrium?

Q4. What relationship does the IS curve capture? Derive the IS curve graphically and show why it slopes as it does. Give two examples of changes in the economy that would cause the IS curve to shift down and to the left.

Q5. Desired consumption and investment are

Cd =4000 - 4000 r + 0.20 Y

Id = 2400 - 4000 r.

As usual, Y is output and r is the real interest rate. Government purchases, G, are 2000.

A). Find an equation relating desired national saving, Sd, to rand Y.

B). What value of the real interest rate clears the goods market when Y = 10,000? Use both forms of the goods market equilibrium condition. What value of the real interest rate clears the goods market when Y = 1O,200?

C). Graph the IS curve.