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Seeking answers for the following questions II.- Question 8 on page 276 of the Textbook. Consider an economy in which government purchases, taxes, and net
Seeking answers for the following questions
II.- Question 8 on page 276 of the Textbook. Consider an economy in which government purchases, taxes, and net exports are all zero. The consumption function is: C = 300 +0.75Y And investment spending (1) depends on the rate of interest (r) in the following way: I= 1000 - 100r Find the equilibrium GDP (or Y) if the Fed sets the rate of interest at (a) 2 percent (r = 0.02), (b) 5 percent and (c) 10 percent. Hint: In this and following problems, first substitute, say, 0.02 for r in the investment function to find amount of I at that level of interest rate. Then the problem is reduced to one of those you had in the second take home problem setStep by Step Solution
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