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Find the equilibrium interest rate

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Reference no: EM133377878

Output in an economy is 6,500. Government purchases, G, are 1,200. Taxes, T, are 800. Consumption is given by:

C = 3,700 ?? 2,000r + 0.2(Y-T)

Investment is given by:

I = 1,000 -4,000r

(1) Find the equilibrium interest rate.

(2) How much are national savings?

(3) Suppose now that T rises to 900 (any other exogenous variables are unchanged).

Find the equilibrium interest rate and national savings.

(4) Graph the effects of the increase in T in the market for loanable funds.

(5) Provide intuition for the effects that an increase in taxes has on the real interest rate and the supply of loanable funds.

Reference no: EM133377878

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