Assume that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 1,200 + 0.3(Y - T) - 50r, where r is the real interest rate, in percent. Investment (I) is given by the equation I = 1,500 - 50r. Taxes (T) are 1,000, and government spending (G) is 1,500.

a.What are the equilibrium values of C, I, and r?
b.What are the values of private saving, public saving, and national saving?
c.Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 - 50r. What are the new equilibrium values of C, I, and r?
d.What are the new values of private saving, public saving, and national saving?

Question

Assume that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 1,200 + 0.3(Y - T) - 50r, where r is the real interest rate, in percent. Investment (I) is given by the equation I = 1,500 - 50r. Taxes (T) are 1,000, and government spending (G) is 1,500.
​
a.What are the equilibrium values of C, I, and r?
b.What are the values of private saving, public saving, and national saving?
c.Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 - 50r. What are the new equilibrium values of C, I, and r?
d.What are the new values of private saving, public saving, and national saving?​

Quizplus · Accepted Answer

The Answer of Assume that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 1,200 + 0.3(Y - T) - 50r, where r is the real interest rate, in percent. Investment (I) is given by the equation I = 1,500 - 50r. Taxes (T) are 1,000, and government spending (G) is 1,500.
​
a.What are the equilibrium values of C, I, and r?
b.What are the values of private saving, public saving, and national saving?
c.Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 - 50r. What are the new equilibrium values of C, I, and r?
d.What are the new values of private saving, public saving, and national saving?​

Assume That GDP (Y) Is 5,000