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    ECONOMICS: Equilibrium Interest Rate

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    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 - 100r

    Where r = equal to Ecoland's real interest rate.

    Calculate, then explain, the following:

    Private saving
    Public saving
    National saving
    Investment
    The equilibrium real interest rate

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    Solution Preview

    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 - 100r

    Where r = equal to Ecoland's real interest rate.

    Calculate, then explain, the following:

    Private saving:

    We know that Y = C + S + ...

    Solution Summary

    The equilibrium interest rate is solved by determining private saving, public saving, national saving, investment given the investment function and assuming the economy is closed (no imports nor exports).

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