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 T200. 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.

ENGR.ECONOMIC ANALYSIS
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Author:NEWNAN
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Chapter1: Making Economics Decisions
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Only for when G=300 please
### Economic Model Analysis

Consider an economy in which the consumption, investment, and production functions are as follows:

#### Equations:

1. **Consumption (C):**
   \[
   C = 90 + 0.7(Y - T)
   \]

2. **Investment (I):**
   \[
   I = 250 - 20r
   \]

3. **Production Function (F):**
   \[
   F(K, L) = AK^{1/2}L^{1/2}
   \]

#### Parameters:

- Capital and labor supply are equal to 100 each.
- \( A = 10 \)
- \( G = 200 \) (initial government spending)
- \( T = 200 \) (taxes)

#### Task:

Compute the equilibrium values for the following:

- Output
- Overall labor income
- Consumption
- Public savings
- National savings
- Investment
- Interest rate

#### Scenario:

Suppose now government spending increases to \( G = 300 \) (everything else stays the same). Calculate the new values for:

- Output
- Consumption
- Savings
- Investment
- Interest rate

This exercise aims to analyze the impact of increased government spending on key economic variables.
Transcribed Image Text:### Economic Model Analysis Consider an economy in which the consumption, investment, and production functions are as follows: #### Equations: 1. **Consumption (C):** \[ C = 90 + 0.7(Y - T) \] 2. **Investment (I):** \[ I = 250 - 20r \] 3. **Production Function (F):** \[ F(K, L) = AK^{1/2}L^{1/2} \] #### Parameters: - Capital and labor supply are equal to 100 each. - \( A = 10 \) - \( G = 200 \) (initial government spending) - \( T = 200 \) (taxes) #### Task: Compute the equilibrium values for the following: - Output - Overall labor income - Consumption - Public savings - National savings - Investment - Interest rate #### Scenario: Suppose now government spending increases to \( G = 300 \) (everything else stays the same). Calculate the new values for: - Output - Consumption - Savings - Investment - Interest rate This exercise aims to analyze the impact of increased government spending on key economic variables.
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