Question

21. G increase with algebra. Consider an economy described by the following model. Y = K1/3L2/3 K = 1000; L = 1000 G = 100 T = 100 C = 250 + 0.5(Y-T) 1 = 600 – 100r Calculate the equilibrium real interest rate, national saving, public saving, private saving, consumption, output, and investment. (Hint: you probably don't want to solve for them it in that order.) i.rs ii. national saving = iii. public saving = iv. private saving = V. consumption = vi. output = vii. investment = Suppose the government increases G to 250. Repeat your calculations above to find the values below. What concept discussed in class and in the textbook does this illustrate? viii. r = ix. national saving = X. public saving = xi. private saving = xii. consumption = xiii. investment = 5 What concept from class does this problem illustrate? a. factor demand b. marginal product C. crowding out d. exogeneity + 1

Answer 1

♡ Y=k's 2/3 Y= (1000) 3 (1000) 3 =1000 At Cam Y=CAITG 1000 = 250+0.5(900)+ 60o-loor+loo 1000= 14oo toor le = 1400 tooo 100 Nahonal Saving = 4-c-G=1000-250-450-100 - 200 18) Public saving - Tax-co=0 14) Put saving = Yo-c= 900-700 = 200 ") conspm - 250 + 450 = 200 a) oupe =1000 111) Iut - 600-100(4) = 200 If Gato as 1000 = is so-1004 r=5.5 1) Naran al sary - Y-C-G=1000-700-250 = so x Public saving - Taxele a 100-20 2 150 X1 Put. saving = %-co=900-700-200 x 11) Trunk = 600-100/5.5)=50 Am is & Crowding out.