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2. Assume that equilibrium GDP (Y) is 18,000. Consumption (C) is given by the equation C = 300+0.8(Y-T). Taxes (T) are equal to 2500. Government spending is equal to 3000. Investment is given by the equation I = 5000-400r, where r is the real interest rate in percent. What is the equilibrium real interest rate? [Show your steps]

2. Assume that equilibrium GDP (Y) is 18,000. Consumption (C) is given by the equation C = 300+0.8(Y-T). Taxes (T) are equal to 2500. Government spending is equal to 3000. Investment is given by the equation I = 5000-400r, where r is the real interest rate in percent. What is the equilibrium real interest rate? [Show your steps]

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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II Analytical 2. Assume that equilibrium GDP (Y) is 18,000. Consumption (C) is given by the equation C = 300+0.8(Y-T). Taxes (T) are equal to 2500. Government spending is equal to 3000. Investment is given by the equation I = 5000-400r, where r is the real interest rate in percent. What is the equilibrium real interest rate? [Show your steps]
Transcribed Image Text:II Analytical 2. Assume that equilibrium GDP (Y) is 18,000. Consumption (C) is given by the equation C = 300+0.8(Y-T). Taxes (T) are equal to 2500. Government spending is equal to 3000. Investment is given by the equation I = 5000-400r, where r is the real interest rate in percent. What is the equilibrium real interest rate? [Show your steps]
Expert Solution
Step 1

GDP is gross domestic product. 

GDP is the sum of consumption, investment, government spending and net export. 

At equilibrium, 

Y = C + I + G + NX 

C is consumption

I is investment

G is government spending

NX is net export. 

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