An economy has full-employment output of 5000. Government purchases are 1000. Desired consumption and desired investment are given by:
Cd = 3600 - 2000r + 0.10Y
Id = 1200 - 4000r
Where Y is output and r is the expected real interest rate:
(a) Find the real interest rate that clears the goods market. Assume that output equals full-employment output.
(b) Calculate the amount of saving, investment, and consumption in equilibrium.
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