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March 28, 2017

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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.

  • macro - ,

    a. Private saving= 750; Public saving=0; National saving=500
    b. r=5
    c.At the new equilibrium The new Private saving= 1000; Public saving=-250; National saving=750
    d.The new equilibrium interest rate=5 (same)

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