Problem:
Consider the economy stated by following equations:
• Y = C + I + G
• Y = 5,000
• G = 1,000
• T = 1,000
• C = 250 + 0.75 (Y – T)
• I = 1,000 – 50 r
Required:
problem 1: In this economy, evaluate private saving, national saving, and public saving.
problem 2: Find out the equilibrium interest rate.
problem 3: Now imagine that G rises to 1,250. Evaluate private saving, national saving, and public income.
problem 4: Find out the new equilibrium interest rate.