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.
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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F60259de8-7027-4c85-8986-5340f0cca3c5%2F180b91bd-c5dc-4bc0-99c0-1fb10d41ca72%2Fbvbbht_processed.jpeg&w=3840&q=75)
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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