Posted by **greg** on Sunday, October 21, 2007 at 5:35pm.

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.

- econ--HELP!! -
**drwls**, Sunday, October 21, 2007 at 6:22pm
(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.

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