Question

Please do it correctly and clearly so I can understand the answer. Thank you!

2. The country, Hoosier (a closed economy), has the following data: GDP: Y = 1200, Consumption: C = 600 - 10,000 r, Taxes: T = 200, Government purchases: G = 300. The investment is I = 700 - 10.000 a. Use the information above to find the supply and demand equations for loanable funds: i. Supply equation: ii. Demand equation: b. What is the equilibrium interest rate, r, and what are national saving and investment, S and I? c. Find the following at the equilibrium loanable funds (saving and investment: i. Consumption: ii. Private saving: Public saving: iv. List 2 policies the Hoosier government could do to increase investment

Answer 1

Solutions (8) Given Y =1200 C= 600-100007 T = 200 G=300 I = 700-100008 @.) Supply fuse tion: on the supply side, GoP = y = 1200 © Demand function: on the demand side, Ct It G = 600-10000 7 + 700 - 10000 8+300 Demand equatio=11600 — 200008) 6 for equilibrium: Demand = supply 1200 = 1600- 200008

20000 8 = 400 x=400/20000 (r = 0.02.) is equilibrium interest rate Then c = 600 (10000 *0.02) = 600 – 200 ::C = 400) Natimal savings S = y-C-G = 1200-400-300 : (5 = 500) and I = 700 (10000 *.0.02) = 700-200 :: I = 500 © for the equilibrim loanable finds: C1) Consumption : c=500 (from b) (i) private saving =(Soo] Ps = Y-1-c - | aoe - 30 -50

(ii) public saving: Pos = T-G 5" 200-300 -6100 (iv) a policies the Hoosier government could increase investment are: (9) Decrease date of interest (b) increasing savings (by decreasing consumptim) - o