Consider a classical economy described by the following equations Y = C + I + G...

Consider a classical economy described by the following equations

Y = C + I + G

Y = 6000

G = 1200

T = 0

C = 3600 – 2000 r + 0.1 Y

I = 1200 – 4000 r

a. Develop an equation relating national savings to r and y. (Hint solve for private savings and then public savings)

b. Find the real rates interest that clears the good market.

c. Suppose government produces rises to 1440. How does this alter national savings?

d. Find the new equilibrium rate of interest

e. Does investment change “I for I” one for one with the change in G? Why or why not? Explain.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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