Question

Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000 C = 6,000 T = 1,500 G= 1,700 The economists also estimate that the investment function is : I = 3,300 - 100r where r is the country's real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate.

Answer 1

Answer:

Private saving $ 2,500.

Public saving $ -200.

National saving $2,300.

Investment is equal to saving = 2,300.

r = 10 percent.

Explanation:

Private saving is equal to (Y – C – T) = 10,000 – 6,000 – 1,500 = 2,500.

Public saving is equal to (T – G) = 1,500 – 1,700 = -200.

National saving is equal to (Y – C – G) = 10,000 – 6,000 – 1,700 = 2,300.

Investment is equal to saving = 2,300.

The equilibrium interest rate is found by setting investment equal to 2,300 and solving for r:

3,300 – 100r = 2,300

100r = 1,000.

r = 10 percent.