Problem 26-11 (algo)For the economy described below:C = 2,500 + 0.9(Y - T) - 8,000rIP = 2,200 - 8,000rG = 2,500NX = 0т 3,600a. Suppose that potential output Y* equals 31,600. What real interest rate should the Fed set to bring the economy to full|employment? You may take as a given that the multiplier for this economy is 10.Instructions: Enter all your responses as whole numbers.Real rate of interest:5 O %b. Suppose that potential output Y* equals 26,800. What real interest rate should the Fed set to bring the economy to fullemployment? You may take as given that the multiplier for this economy is 10.Real rate of interest:8 O %c. Show that the real interest rate determined in part a sets national saving equal to planned investment when the economy isat potential output. This result shows that the real interest rate must be consistent with equilibrium in the market for savingwhen the economy is at full employment.Planned investment P=3160 *National saving S= 3160

Note: assuming that the green tick is for the correct answer in parts a and b. The real interest…

c. Show that the real interest rate determined in part a sets national saving equal to planned investment when the economy is at potential output. This result shows that the real interest rate must be consistent with equilibrium in the market for saving when the economy is at full employment. Planned investment P = 3160 National saving S= 3160 *

c. Show that the real interest rate determined in part a sets national saving equal to planned investment when the economy is at potential output. This result shows that the real interest rate must be consistent with equilibrium in the market for saving when the economy is at full employment. Planned investment P = 3160 National saving S= 3160 *

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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