Ki Y.

asked • 06/16/21

1. An economy has full-employment output, Y, of 6,000. Government purchases, G, are 1,200. Desired consumption and desired investment are:

1. An economy has full-employment output, Y, of 6,000. Government purchases, G, are 1,200. Desired consumption and desired investment are:


Cd = 3600 – 2000r + 0.1Y

Id = 1200 – 4000r


where Y is output and r is the interest rate.


a. Find an equation relating desired national saving, Sd, to r and Y


b. Using both versions or forms of the goods market equilibrium, find the real interest rate that clears the goods market. Assume that the output equals full-employment output.


c. Government purchases rise to 1,440. How does this increase change the equation describing desired saving? Show the change graphically. What happens to the market-clearing real interest rate?


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