Budget deficit is equal to 400

2. (10) Consider an economy described as follows: Y=C+I+G Y=14,000 6:3,000 C = 1,000 + 0.80 {Y T) | = 1,900 70 r (NOTE: r is the real interest rate measured as a %; e.g., 5 = 5%) *** This economy is currently experiencing a budget deficit equal to 400. a. In this economy, compute public saving, private saving, and national saving. b. Find the equilibrium interest rate. c. Suppose this country's legislature passes a balanced budget amendment requiring government spending to equal net taxes. Find the new equilibrium interest rate under each of the following two options: a. Option I: Balance the budget by changing taxes b. Option ll: Balance the budget by changing government spending Under which option will real interest rates be higher, and investment lower