(Answered) Let the following equations characterize an economy note

Management Studies

Let the following equations characterize an economy: (note the addition of a tax rate on output)

Y = C + I + G

Y = 400

C = 60 + 0.8(Y - T)

I = 20 - r

G = 100

T = 0.4Y

Where: Y=output, C=consumption, I=investment, G=government spending, T=taxes, r = real interest rate

a. Calculate national saving, private saving, and public saving.

b. Obtain the mathematical expression for the AD in this particular economy.

c. If Government spending increases to 120, what is the effect on income? Use the multiplier and calculate the increase in Y.

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