4. Consider a classical economy described as follows: 1 1 Y = LžKz, where L is the amount of labor and K is the amount of capital. The economy has 10,000 units of labor and 10,000 units of capital. Consumption (C): 5,020-100r, Investment (I) : 2,000-100r, Taxes (T): 2,500, Government Purchases (G) :3,000 a. Compute the total production and find the equilibrium interest rate. b. Compute private saving, government saving, and national saving. c. Now suppose that G is reduced by 10. Find the new equilibrium interest rate. What happens to consumption, private saving, government saving, national saving and investment?

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Chapter1: Making Economics Decisions
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Consider a classical economy described as follows:

? = ?^(1/2)?^(1/2) , where L is the amount of labor and K is the amount of capital. The economy has 10,000 units of labor and 10,000 units of capital.

Consumption (C): 5,020-100r, Investment (I) : 2,000-100r, Taxes (T): 2,500, Government Purchases (G) :3,000

4. Consider a classical economy described as follows:
1 1
Y = LZK 2, where L is the amount of labor and K is the amount of capital. The economy
has 10,000 units of labor and 10,000 units of capital.
Consumption (C): 5,020-100r, Investment (I): 2,000-100r, Taxes (T): 2,500, Government
Purchases (G) :3,000
a. Compute the total production and find the equilibrium interest rate.
b. Compute private saving, government saving, and national saving.
c. Now suppose that G is reduced by 10. Find the new equilibrium interest rate. What
happens to consumption, private saving, government saving, national saving and
investment?
Transcribed Image Text:4. Consider a classical economy described as follows: 1 1 Y = LZK 2, where L is the amount of labor and K is the amount of capital. The economy has 10,000 units of labor and 10,000 units of capital. Consumption (C): 5,020-100r, Investment (I): 2,000-100r, Taxes (T): 2,500, Government Purchases (G) :3,000 a. Compute the total production and find the equilibrium interest rate. b. Compute private saving, government saving, and national saving. c. Now suppose that G is reduced by 10. Find the new equilibrium interest rate. What happens to consumption, private saving, government saving, national saving and investment?
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