Please help me compile a 2-3 page analysis.
Assume that the officials in Ecoland have compiled the following information about their economy for last year:
Y = 10,000
C = 6,000
T = 1,500
G = 1,700
The government uses the following equation for the investment function:
I = 3,300 â?" 100r
Where r = equal to Ecolandâ??s real interest rate.
Calculate, then explain, the following:
The equilibrium real interest rate
Private savings is equal to Y-T-C.
Thus we have: 10000 - 1500 - 6000= 2500
Public savings is equal to T-G (it is the amount by which government income exceeds government spending).
So we have:
1500 - 1700 = -200
National Savings = Investment in a closed economy. Rememeber that investment is represented by "I" in the general GDP equation Y = C + I + G. So we can rearrange it and find:
I = Y - C - G
10000 - 6000 - 1700 = 2300
We could also add public and private savings to find this value.
The equilibrium interest rate can now be found by inserting this value into the equation I = 3,300 - 100r and solving for r. Thus we have:
I = 3,300 - 100r
100r = 3300 - 2300 = 1000
r = 10%
In your analysis, you will consider the changes that need to be made to improve this economy. Notice that interest ...
Improving the economy of Ecoland