Q. 1: Consider an economy described as follows: Y = C + I + G Y= 8000 G = 2500 T = 2000 C = 1000 + 2/3 (Y – T) I = 1200 – 100r a. Compute public savings, private savings and national savings for this economy. b. Find the equilibrium interest rate. c. Now, suppose that T increased by 500, compute public savings, private savings and national savings for this economy. d. What happens to new equilibrium interest rate.

Q. 1: Consider an economy described as follows: Y = C + I + G Y= 8000 G = 2500 T = 2000 C = 1000 + 2/3 (Y – T) I = 1200 – 100r a. Compute public savings, private savings and national savings for this economy. b. Find the equilibrium interest rate. c. Now, suppose that T increased by 500, compute public savings, private savings and national savings for this economy. d. What happens to new equilibrium interest rate.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 4PA

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Concept explainers

Public Saving

Public saving deals with the amount which has been in excess after meeting all the obligatory expenses and investment of the government. Taxes are collected by the government to meet its day-to-day expenditures. The obligatory expenses include all those expenses which are mandatory for the government. It cannot be avoided as it is inevitable.

Question

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Q. 1: Consider an economy described as follows:
Y = C + I + G
Y= 8000
G = 2500
T = 2000
C = 1000 + 2/3 (Y – T)
I = 1200 – 100r
a. Compute public savings, private savings and national savings for this economy.
b. Find the equilibrium interest rate.
c. Now, suppose that T increased by 500, compute public savings, private savings and national savings for this economy.
d. What happens to new equilibrium interest rate.

Definition Definition Income earned by a government that is not spent on current expenses, but rather saved for future investments or to pay off debts. It is the difference between government revenue and expenditures, and can be positive or negative.

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