In an economy, desired consumption and investment are given bycd=5,000+ 0.20Y-4,500r= 2,400 4,000rwhere Y is output and r is the real interest rate.Government purchases are G = 2,100.The equation for desired national saving is given by:S=7,100+ 0.80Y+ 4,500r.When Y=10,000, the equilibrium rate of interest is calculated to be r = 18%.When Y= 10,200, the equilibrium rate of interest is calculated to be r = 16%.These equilibrium output and interest rate combinations are used to draw the initialIS curve labeled /S1.Now the level of government purchases increases to 2,600. Determine the equationfor the new saving function:S = +Y+r.☐

Approach to solving the question: Begin by defining the desired consumption function, represents the…

Answered: In an economy, desired consumption and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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An economy has government purchases of 2000 (G=2,000). Desired national saving and desired investment are given by Sd = 200 + 500Or + (0.1Y) - (0.2G) Id = 1000 - 4000r When the full-employment level of output equals 5000, A. What is the equilibrium real interest rate? B. What is the equilibrium level of desired Investment? c. What is the equilibrium level of consumption?
Suppose that GDP is $8 billion, taxes are $1.5 billion, private saving is $0.5 billion, and public saving is 0.2 billion. Assuming the economy is closed, calculate the size of:(i) Consumption (ii) Investment (iii) Government Spending (iv) National Savings b. Explain the difference between saving and investment as defined by a macroeconomist. c. Which of the following situations in c (i) & c (ii) represent investment? Saving? Explain(i) Your family takes out a mortgage and buys a new house. (ii) You use your paycheque to buy stock in Sagicor Financial Services.
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In a closed economy, the gross domestic product is $25,000, consumption is $8,200 and taxes are $3,700. If the national saving is 3,000, if the investment function is represented by I = 3,400-80r, the equilibrium interest rate is: Select one: a. 12% b. 5% c. 3% d. 8% e. None of the answers are correct
So far we have assumed that consumption is determined by disposable income (C=C(Y-T), with the function increasing) and investment is determined by the real interest rate (I = I(r), with the function decreasing). But the real interest rate may affect households' choice between consumption and saving, and firms' sales or cash flow may influence their investment. This problem therefore asks you to consider the implications of some alternative assumptions. a. Suppose C=C(Y-T,r), with C a decreasing function of r. With this change in the model, does an increase in G increase C, decrease it, or leave it unchanged, or is it not possible to tell? b. Suppose II(Y-T,r), with I an increasing function of Y-T (and suppose that C is given by C(Y T)). Does an increase in G increase I, decrease it, leave it unchanged, or is it not possible to tell? C. Suppose there are two types of investment. One (for example, the investment of large, mature firm) is determined by the real interest rate, and the…

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