1. In a certain economy, the components of aggregate spending are given by: 

C = 500+0.8(Y −T)−300r

 I = 200 − 400r 

G= 200 

NX = 10

 T= 150

Y = 

Given the information about the economy above, find the expression which states aggregate expenditure.

 [790 - 700r] + 0.8Y

2. In a certain economy, the components of aggregate spending are given by:

C = I = G = NX  = T = 

500+0.8(Y −T)−300r 200 − 400r 20010150   

Given the information about the economy above, what would be the impact on short-run equilibrium output of a one-percentage-point increase in the real interest rate from 4 percent to 5 percent?