2.1 Question 1 Consider the following model of the economy: Y, =C+I+GY, = 8,000 G, = 2,500 T, = 2,000 C, = 1,000+ (Y-7) 1₁ = 1,200-100r (a) In this economy, compute private saving, public saving, and national saving. (b) Find the equilibrium interest rate. (c) Now suppose that G is reduced by 500. Compute private saving, public saving, and national saving. (d) Find the new equilibrium interest rate.

2.1 Question 1 Consider the following model of the economy: Y, =C+I+GY, = 8,000 G, = 2,500 T, = 2,000 C, = 1,000+ (Y-7) 1₁ = 1,200-100r (a) In this economy, compute private saving, public saving, and national saving. (b) Find the equilibrium interest rate. (c) Now suppose that G is reduced by 500. Compute private saving, public saving, and national saving. (d) Find the new equilibrium interest rate.

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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Public Saving

Public saving deals with the amount which has been in excess after meeting all the obligatory expenses and investment of the government. Taxes are collected by the government to meet its day-to-day expenditures. The obligatory expenses include all those expenses which are mandatory for the government. It cannot be avoided as it is inevitable.

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