Consider an economy described as follows:Y = C + I + GC = 100...

Consider an economy described as follows:

Y = C + I + G

C = 100 + 0.8 (Y - T)

I = 200 - 50r

Assume that G and T are given, r is the real interest rate. Note: parts (c) and (d) are independent of each other.

(5 points) What are endogenous and exogenous variables in the economy?
(10 points) If taxes increase by 200, calculate the change in private saving, public saving, and national saving. (Your answers should be numbers).
(10 points) Now assume that saving does not depend on the real interest rate and G = 1,500; T = 300; Y = 5,000. Find the equilibrium interest rate. Graph the market for loanable funds.
(10 points) Now assume that saving depends on the real interest rate according to this following function: S = 100 + 30r.Find the equilibrium interest rate. Graph the market for loanable funds.

Expert Solution

Due to lack of additional information, there was a necessity of an assumption that has been made.

Rahul Sunny answered 2 years ago

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