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We use the following terminology in this part: aggregate income Y and disposable income Yd (= Y T), consumption function 001;), planned investment function I('r),
We use the following terminology in this part: aggregate income Y and disposable income Yd (= Y T), consumption function 001;), planned investment function I('r), government spending G, and taxatiOn T = tY where t is the marginal tax rate; 7% denotes the real interest rate in the economy. (Note, 1' is in percentage points, e.g. r = 2 means the interest rate is 2%. When doing calculations, the interest rate should not simply be inserted in decimal form. For example, if 'r = 5 then [(5) = 52 0.2 x 5 = 51.) Consider a hypothetical economy where: 0041) = 30 + 2/3 x (Y T) I(1')= 52 0.2 x 1' G = 160 t = 0.4 (represents 40%) 5. What are the equilibrium values of the interest rate, 'r, and investment, I? (Hint: use the M PR or I S, and HT) equations.) IS equation: r = 1210-3Y
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