1. An economy has govemment purchases, G, of 1200. Desired consumption and de- sired investment are C= 3600 – 2000r + 0.10Y and 1 = 1200 – 4000r, where Y is output and r is the real interest rate. (a) Find an equation of savings curve (S) as a function of r and Y. (b) Derive an IS curve. (c) Find the goods market equilibrium r when the output Y is 5000.

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