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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.

  • econ--HELP!! -

    (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.

  • econ--HELP!! -

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

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