Question
Consider an extension of the model from the lecture, in which aggregate consumption decreases in the real interest rate: C = 100 + 0.25(Y
Consider an extension of the model from the lecture, in which aggregate consumption decreases in the real interest rate: C = 100 + 0.25(Y - T) - 1000r. Aggregate investments are given by I = io 1000r. Suppose the government tries to stimulate investments into green energy by subsidizing investments into solar panels. Assume the subsidy raises firms' desired investments, shifting the investment demand curve by Aio = 50. 12 Compute the change in the equilibrium interest rate Ar induced by the subsidy. 13 Compute the corresponding change in the equilibrium level of investments AI induced by the subsidy.
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Econometric Analysis
Authors: William H. Greene
5th Edition
130661899, 978-0130661890
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