Reference no: EM13204252
Consider a closed economy described by the following equations:
Y= C + I + G Y = 5,000
G = 500 T = 1,000
C = 500 + 0.75(Y - T) I = 1,250 - 500r.
Compute private, public, and national savings.
Find the equilibrium interest rate (r).
Suppose that expected inflation is 1.5 percent, use the Fisher equation and your answer to b above to determine the nominal interest rate.
Now, suppose that T decreases to 500. Compute private, public, and national savings.
Find the new equilibrium interest rate (r).
Graph the answers to b) and e) above and briefly explain the graph. Be sure to label the axes , curves, equilibrium interest rates, equilibrium levels of private investment, and national savings.
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