An economy has government purchase of $20, and level of output of $100, it also has...

An economy has government purchase of $20, and level of output of $100, it also has consumption and savings as follows:

C = 200r + 20

S = 100r +45

(each question is separate and do not build on each other)

What is the equilibrium interest rate and saving/investment?
If government purchase increase to $40, what is the equilibrium interest rate and saving/investment?
If level of output decreases to $80, what is the equilibrium interest rate and saving/investment?
If there is a positive saving shock leading to a new saving function S = 100r + 35, what is the equilibrium interest rate and saving/investment?

Expert Solution

Rahul Sunny answered 2 years ago

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