Question

An economy has government purchase of $20, and level of output of $100, it also has...

  1. An economy has government purchase of $20, and level of output of $100, it also has consumption and savings as follows:

C=200r+20

S=100r+45

(each question is separate and do not build on each other)

  1. What is the equilibrium interest rate and saving/investment?
  2. If government purchase increase to $40, what is the equilibrium interest rate and saving/investment?
  3. If level of output decreases to $80, what is the equilibrium interest rate and saving/investment?
  4. If there is a positive saving shock leading to a new saving function S=100r+35, what is the equilibrium interest rate and saving/investment?

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