Private saving in an economy is given by Sv = 200 + 5r, where r is the real rate of interest. Net taxes are 300 and government purchases are 400, while govt transfer payments are 100.

Private saving in an economy is given by Sv = 200 + 5r, where r is the real rate of interest. Net taxes are 300 and government purchases are 400, while govt transfer payments are 100. This country lends 200 internationally each year, and investment is given by I = 1200 – 5r. Finally, the inflation rate in this economy is 8%. According to the loanable funds theory of interest, what is the equilibrium value for the real interest rate?

Expert Solution

At eqm, National saving S = I + NCO

National saving = public saving + private saving

= (T-G-TR) + Sv

= (300-400-100) + 200+5r

= 5r

NCO : net capital outflow = -200

.

so at eqm

5r = 1200-5r -200

10r = 1000

r = 100

= 100/100 = 1%

Rahul Sunny answered 2 years ago

Given the following economic information for Country A (in RM billion): Saving (S) = –500 + 0.3Yd Investment (I) = 400 – 200r Government spending (G) = 500 Taxes (T) = 200

Given the following economic information for Country A (in RM billion):Saving (S) = –500 + 0.3YdInvestment (I) = 400 – 200rGovernment spending (G) = 500Taxes (T) = 200Nominal money supply (Ms ) = 4000Money demand for transactions (Md t/P) = 0.2YMoney demand for speculations (Md s) = 1600 – 500rPrice (P) = 2 di mana Y dan r adalah masing-masing mewakili tingkat pendapatan dan kadar bunga.where Y and r represent the levels of income and interest rate, respectively. Based on...

Question

Private saving in an economy is given by Sv = 200 + 5r, where r is the real rate of interest. Net taxes are 300 and government purchases are 400, while govt transfer payments are 100.

Solutions

Expert Solution

Related Solutions

Given the following economic information for Country A (in RM billion): Saving (S) = –500 + 0.3Yd Investment (I) = 400 – 200r Government spending (G) = 500 Taxes (T) = 200