Consider an economy in which the consumption, investment and production functions are as follows. C = 90 +0.7(Y-T) I = 250 - 20r F(K, L) = AK¹/21/2 The capital and labor supply are equal to 100 each, A=10, G = 200 and T = 200. Compute the equilibrium values of output, overall labor income, consumption, public savings, national savings, investment, and the interest rate.
Answer only the highlighted part and make sure to state how each equilibrium was measured (what formulas/rules) please. Also please make the math used clear.
The production function exhibits the relationship between the input and output. The resources required to produce the final goods and services is known as input. The good which is consumed by the final consumer is the output.
Consumption function shows the relationship between consumption demand and disposable income. Consumption function has two components namely, autonomus consumption and induced consumption.
Investment function shows negative relationship between investment and the interest rate.
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