Question

Economists in Funlandia, which has a closed economy, have collected the following information about the economy for a particular year:
Y = 12,500
C = 9,000
T = 2,100
G = 2,200
The economists also estimate that the investment function is:

I = 2,000−100r
where r is the country’s real interest rate, expressed as a percentage.

Calculate private saving, public saving, national saving, investment and equilibrium real interest rate.

Answer 1

Solution and Explanation:

private saving = Y - T - C = 12500 - 2100 - 9000

= 1400

Plublic saving = T - G = 2100 - 2200 = -100

national saving = Y - C - G = 12500 - 9000 - 2200 = 1300

Investment = saving

1400 - 100r = 1300

now, we need to calculate the value of r

-100r = 1300 - 1400

-100r = -100

r = 1

therefore, Investment ( I) = 1400 - 100 ( 1 )

= 1400 - 100

= 1300