Chapter 1. Chapter 3 – Problem 10

Step 1

Work It Out
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You must read each slide, and complete any questions on the slide, in sequence.

Question

Consider an economy described as follows:
Y = C + I + G.
Y = 5,000.
G = 1,000.
T = 1,000.
C = 250 + 0.75(Y – T).
I = 1,000 – 50 r.

In this economy, compute private saving, public saving, and national saving.

Private Saving = Cna/muxNCTk=

Public Saving = 78YzBHhvBzA50GXZ

National Saving = Cna/muxNCTk=

Review text pages 69-73 for a discussion of the determinants of saving in the long-run model.
2:16

Step 2

Question

Consider an economy described as follows:
Y = C + I + G.
Y = 5,000.
G = 1,000.
T = 1,000.
C = 250 + 0.75(Y – T).
I = 1,000 – 50 r.

Find the equilibrium interest rate.

The equilibrium interest rate is equal to t7Z6y4UAOR0=.

Review text pages 68-71 and Figure 3-8 for discussion of how the equilibrium interest rate is determined in the long-run model.
0:42

Step 3

Question

Consider an economy described as follows:
Y = C + I + G.
Y = 5,000.
G = 1,000.
T = 1,000.
C = 250 + 0.75(Y – T).
I = 1,000 – 50 r.

Now suppose that G rises to 1,250. Compute private saving, public saving, and national saving.

Private Saving = Cna/muxNCTk=

Public Saving = 0O3WEi+rRa4=

National Saving = poG0pQg2yAs=

Review text pages 69-73 for a discussion of the determinants of saving in the long-run model.
1:33

Step 4

Question

Consider an economy described as follows:
Y = C + I + G.
Y = 5,000.
G = 1,000.
T = 1,000.
C = 250 + 0.75(Y – T).
I = 1,000 – 50 r.

Now suppose that G rises to 1,250. Find the new equilibrium interest rate.

The equilibrium interest rate is equal to V3cqXNH6Wo7VJtVW.

Review text pages 69-73 and Figure 3-10 for discussion of how the equilibrium interest rate changes when public saving changes.
0:47