For the economy described below: C = 2,800+ 0.5(YT) - 8,000r IP = 2,000 - 8,000r G = 2,500 NX = 0 T = 3,600 a. Suppose that potential output Y' equals 9.080. What real interest rate should the Fed set to bring the economy to full employment? You may take as a given that the multiplier for this economy is 2. Instructions: Enter all your responses as whole numbers. Real rate of interest I b. Suppose that potential output Y* equals 7,800. What real interest rate should the Fed set to bring the economy to full employment? You may take as given that the multiplier for this economy is 2. Real rate of interest: %

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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For the economy described below:
C = 2,800+ 0.5(YT) - 8,000r
8,000r
IP = 2,000
G = 2,500
NX-0
T = 3,600
a. Suppose that potential output Y* equals 9,080. What real interest rate should the Fed set to bring the economy to full
employment? You may take as a given that the multiplier for this economy is 2.
Instructions: Enter all your responses as whole numbers.
Real rate of interest: %
b. Suppose that potential output Y' equals 7,800. What real interest rate should the Fed set to bring the economy to full
employment? You may take as given that the multiplier for this economy is 2.
Real rate of interest:
%
c. Show that the real interest rate determined in part a sets national saving equal to planned investment when the economy
is at potential output. This result shows that the real interest rate must be consistent with equilibrium in the market for
saving when the economy is at full employment.
Planned investment P=
National saving S=
Transcribed Image Text:For the economy described below: C = 2,800+ 0.5(YT) - 8,000r 8,000r IP = 2,000 G = 2,500 NX-0 T = 3,600 a. Suppose that potential output Y* equals 9,080. What real interest rate should the Fed set to bring the economy to full employment? You may take as a given that the multiplier for this economy is 2. Instructions: Enter all your responses as whole numbers. Real rate of interest: % b. Suppose that potential output Y' equals 7,800. What real interest rate should the Fed set to bring the economy to full employment? You may take as given that the multiplier for this economy is 2. Real rate of interest: % c. Show that the real interest rate determined in part a sets national saving equal to planned investment when the economy is at potential output. This result shows that the real interest rate must be consistent with equilibrium in the market for saving when the economy is at full employment. Planned investment P= National saving S=
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