The Spartan economy has the following full employment output and expenditures. Y = 2100 Cd =...

The Spartan economy has the following full employment output and expenditures.

Y = 2100

C^d = 100 + .75 (Y – T) – 2000 r

T = 500

G = 400

I^d = 600 – 3000 r

Find the equilibrium real interest rate?
What is the equilibrium desired national saving amount?

i. How much is desired private saving?

ii. How much is government saving?

What is the equilibrium desired investment?
What is the desired consumption?
Draw the graph of the goods market equilibrium (S^d, I^d, r). Label completely, including equilibrium amounts.
Show the change on the graph if taxes are decreased for both households and firms.
How do desired saving amount and desired investment amount change? For each state if it increases, decreases, does not change, or is ambiguous?

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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