Question

Q.1
Suppose the following equations represents a closed economy:
(3.5 marks)
Y=C+I+G
Y = 4000
G=500
T=500
C = 500 +0.7 (Y-T)
I=1000 – 40r
In this economy, compute the value of consumption (C), private saving, public saving,
and national saving. Also, find the equilibrium interest rate (r).
b. Now suppose that govemment spending (G) rises (expansionary fiscal policy) to 300.
Compute private saving, public saving, and national saving. Also, find the new
equilibrium interest rate (r).
c. In part (b), due to expansionary fiscal policy increase in government spending), which of
the two other components of aggregate demand changes. C or I? Why? (Hint: Note the
real interest rate)​

Answer 1

answer is a I hope it is correct

,if wrong so sorry