Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1.Assume that GDP ( Y ) is 6,000. Consumption ( C ) is given by the equation C = 600 + 0.6( Y - T

1.Assume that GDP (Y) is 6,000. Consumption (C) is given by the equation C = 600 + 0.6(Y - T) - 100r. Investment (I) is given by the equation I = 2,000 - 100r, where r is the real rate of interest in percent. Taxes (T) are 500 and government spending (G) is also 500.

National Saving (S) = Y- C - G

S= Y - [ 600 + 0.6 (Y-T) ] - 500

S= Y- 600 - .06 (Y - 500) - 500

S= Y- 1100 - .06 (Y- 500) - 300

National Savings (S) = .4Y - 800

Current Equilibrium for R= 4

Current Equilibrium for C = 3900

Current Equilibrium for I = 1600

Question 1 : If Government spending rises to 1,000 what are the new equilibrium values for C, I, and R?

Question 2.) Illustrate what happens to S, I, and r using the loanable funds framework.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Macroeconomics Principles Applications And Tools

Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez

7th Edition

978-0134089034, 9780134062754, 134089030, 134062752, 978-0132555234

More Books

Students also viewed these Economics questions