Answer to Question #255814 in Macroeconomics for rei

Question

an economy has the following variables:

Goods Market:

Y=800

C=250+1/2(Y-T)

I=150-500r

G=100

T=100

a) Graphically draw the goods market. Show graphically what would happen to savings, investment, and the real interest rate if the government decreases expenditure.

b) From the given information what is the equation for the desired level of savings?

c) What is the equilibrium level of savings, level of investment, and the real interest rate?

d) Suppose the government decreases their purchases to 50. What is the new equilibrium level of savings, level of investment, and the real interest rate?

Answer 1

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