Consider a closed economy with a gross domestic product (Y) of 800, consumptionexpenditure (C) of 500, government expenditure (G) of 100 and tax revenues (T) of190. The figures are in billions of dollars. Suppose the investment expenditure functionis I = 300 – 50r, where r is the real interest rate expressed as a percentage.a) State the equation between Y and the three components of expenditure.b) Calculate private saving (Sp), public saving (Sg), and national saving (S).c) Calculate investment (I).d) Calculate the equilibrium real interest rate and quantity of loanable funds.e) If the government ran a budget deficit of $30 billion in the next period,explain how this would affect the market for loanable funds.

Step 1:(a). Equation between Y and components of expenditure is:Y= C + I + GHere C is the…

Answered: Consider a closed economy with a gross…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Explain some reasons why consumption spending and gross private domestic investment spending are so important. What determinants do they have in common?
Suppose GDP is Rs.15 trillion, taxes are Rs.5.5 trillion, private saving is Rs.2 trillion, and public saving is Rs. 2.5 trillion. Assuming this economy is closed, Calculate a) Government purchases b) National saving c) Consumption d) If the government increases taxes to 6.5 trillion, calculate private Saving
A simple economy consists of three industries: agriculture, manifacturing and services. The input-output matrix associated with this economy is A M A 0.1 0.2 0.2 M 0.2 0.2 0.1 S 0.1 0.1 0.3 Find the gross output of goods needed to satisfy a consumer demand for 170 million dollars worth of agricultural products, 150 million dollars worth of manufactured products, and 180 million dollars worth of services. million dollars worth of agricultural products, and million dollars worth of manufactured products. million dollars worth of services.
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