An economy has full-employment output of 6,000. Government purchases, G, are 1,600. Desired consumption and desired investment are c° = 3,200 - 2,000r + 0.20Y, and P = 1,200 - 2,000r, where Yis output and r is the real interest rate a. Find an equation relating desired national saving, S°, to r and Y. sd = D+Or+DY b. Using the goods market equilibrium condition, find the real interest rate that clears the goods market. Assume that output equals full-employment output. % (enter your response in percent rounded to one decimal place). c. Government purchases rise to 1,800. What is the new equilibrium real interest rate? / = % (enter your response in percent rounded to one decimal place).

An economy has full-employment output of 6,000. Government purchases, G, are 1,600. Desired consumption and desired investment are c° = 3,200 - 2,000r + 0.20Y, and P = 1,200 - 2,000r, where Yis output and r is the real interest rate a. Find an equation relating desired national saving, S°, to r and Y. sd = D+Or+DY b. Using the goods market equilibrium condition, find the real interest rate that clears the goods market. Assume that output equals full-employment output. % (enter your response in percent rounded to one decimal place). c. Government purchases rise to 1,800. What is the new equilibrium real interest rate? / = % (enter your response in percent rounded to one decimal place).

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Aggregate Demand

Section: Chapter Questions

Problem 3.7P

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