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Consider a closed economy with a gross domestic product

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Question: Consider a closed economy with a gross domestic product (Y) of 1200, consumption expenditure (C) of 750, government expenditure (G) of 200 and tax revenues (T) of 170. The figures are in billions of dollars. Suppose the investment expenditure function is I = 400 - 200r, where r is the real interest rate expressed as a percentage. State the equation between Y and the three components of expenditure. Calculate private saving (Sp), public saving (Sg), and national saving (S). Calculate investment (I). Calculate the equilibrium real interest rate and quantity of loanable funds. If the government ran a budget surplus of $20 billion in the next period, explain how this would affect the market for loanable funds.

Reference no: EM133522491

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