A New Republic economy has full-employment (or potential) output of 10,000 and government purchases are 2,000

(a) Consumption falls as interest rate rises:

As interest rate rises, consumers tends to decrease their consumption and increase savings in order to gain the more interest income. Hence, consumer change their behavior and starts saving more when interest rate increases.

Investment falls as interest rate rises:

As interest rate rises, it becomes expensive to borrow from the bank for the businesses and firms for the purpose of investment. Hence, increases in interest rate, increases the cost of borrowing which leads to less borrowing from the banks and less investment.

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(b)

National savings = Y - C - G

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(c)

At goods market equilibrium point (in closed economy)

Y = C + I + G

=> Y - C - G = I

=> National saving = Investment.

Hence, at goods market equilibrium, national saving = investment

=> national saving = investment = 2600

The real interest rate at investment level of 2600 is 4%

So,

The equilibrium is at level when,

Interest rate = 4%
National saving = 2600
Investment = 2600