posted by greg on .
Consider an economy described by the following equations:
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.
(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.
THANK YOU, you are GREAT, its a review quest. and i do not have the book.