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(YT)
I=1,00050r
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.

econHELP!!  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(5001000) + 1000  50r +1000
50 r = 2250 375 500 = 27.5%
(c and d) Repeat with the new value of G.
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