Explore BrainMass

Explore BrainMass

    new equilibrium values

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Assume that GDP (Y) is 5,000. Consumption is C=1,000+.3(Y-T). Investment is I=1500-50r, where r is the real interest rate. Taxes (T) are 1,000 and government expenditures (G) are 1,500.

    a). Calculate the equilibrium values of C, I, and r.
    b). Calculate the equilibrium values of private saving, government saving, and total saving.
    c). Now suppose that there is a technological innovation that makes businesses want to invest more, so that the new investment function is I=2,000-50r. Calculate the new equilibrium values of C, I, and r.
    d). Calculate the new equilibrium values of private saving, government saving, and total saving.

    © BrainMass Inc. brainmass.com March 4, 2021, 7:40 pm ad1c9bdddf
    https://brainmass.com/economics/general-equilibrium/new-equilibrium-values-115837

    Solution Preview

    Assume that GDP (Y) is 5,000. Consumption is C=1,000+.3(Y-T). Investment is I=1500-50r, where r is the real interest rate. Taxes (T) are 1,000 and government expenditures (G) are 1,500.
    Y = 5000
    C=1,000+.3(Y-T)
    I=1500-50r
    T = 1000
    G = 1500

    a). Calculate the equilibrium values of C, I, and r.

    At the equilibrium, Y = C + I + G
    or 5000 = 1,000+.3(5000- 1000) + 1500-50r + ...

    Solution Summary

    This post finds new equilibrium values of private saving, government saving, and total saving.

    $2.49

    ADVERTISEMENT