Consider a Competitive Economy in Which Factor Prices Adjust to Keep

Essay

Consider a competitive economy in which factor prices adjust to keep the factors of production fully employed. In addition, the interest rate adjusts to keep the supply and demand for goods and services in equilibrium. The economy can be described by the following set of equations:
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Y = AK^a L^{(1 - a)}
Y = C + I + G
C = C(Y - T)
I = I(r)
Suggest at least two policies that a government could use to increase the equilibrium quantity of investment in the economy and carefully explain how these policies produce this result.
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