QUESTION

Question

Consider an economy described by the following equations:

Y=C+I+G
Y=500
G=1,000
T=1,000
C=250+0.75(Y-T)
I=1,000-50r

a.In this economy, compute private saving, public saving, and national saving.

b. Find the equilibrium interest rate.

c. Now suppose that G rises to 1,250. Compute private saving, public saving,
and national saving.

d. Find the new equilibrium rate.

Answer 1

(a) By conventional macroeconomic definitions,
Private saving is equal to (Y – T – C)
Public saving is equal to (T – G)
National saving is the sum of the two, (Y - C - G).

I am assuming that r is the interest rate in %

(b) If you set Y = C + I + G, you can solve for r.

500 = 250 + 0.75(500-1000) + 1000 - 50r +1000
50 r = 2250 -375 -500 = 27.5%

(c and d) Repeat with the new value of G.

Answer 2

THANK YOU, you are GREAT, its a review quest. and i do not have the book.

Answer 3

41570

Answer 4

C