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. Suppose now government spending increases to G=300 (everything else stays the same). What happens to output, consumption, savings, investment and the interest rate? Compute the new

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Please solve only when G=300, please include what formulas used and if you can solve it manually. 

Consider an economy in which the consumption, investment and production functions are as follows.
C = 90 +0.7(Y-T)
I= 250 207
F(K, L) = AK¹/2¹/2
H
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.
Suppose now government spending increases to G=300 (everything else stays the same). What
happens to output, consumption, savings, investment and the interest rate? Compute the new
values for these variables.
Transcribed Image Text:Consider an economy in which the consumption, investment and production functions are as follows. C = 90 +0.7(Y-T) I= 250 207 F(K, L) = AK¹/2¹/2 H 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. Suppose now government spending increases to G=300 (everything else stays the same). What happens to output, consumption, savings, investment and the interest rate? Compute the new values for these variables.
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