Suppose a small open economy is characterized by the following equations:

Aggregate demand: AD = 2000 - 1000r + 0.8Y

Aggregate supply: AS = 1000 + 1000r

where Y is real GDP and r is the world interest rate. The current world interest rate is 5%.

a) Calculate the equilibrium level of real GDP in this economy.

b) Suppose the government increases taxes by $200. Calculate the new equilibrium level of real GDP, the change in the equilibrium interest rate, and the change in the price level.

c) Suppose instead the government increases government spending by $200. Calculate the new equilibrium level of real GDP, the change in the equilibrium interest rate, and the change in the price level.

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