ANSWER C, D, E FOR UPVOTE 4. Apply the classical theory. Consider a hypothetical economy described below:Y=C+I+GC = 50+ c(Y - T)I = 300-20rY = 2,000T = 900G = 1,500c = 0.6where Y is output, C is consumption, I is investment, G is government purchases, Tistaxes, and ris real interest rate in percent.c) Suppose taxes are reduced by 80. First, calculate private saving, public saving,and national saving. Second, find the new equilibrium interest rate. Third,draw a graph that shows the change in the equilibrium.d) Instead of reducing taxes by 80, suppose government purchases are increasedby 80. First, calculate private saving, public saving, and national saving.Second, find the new equilibrium interest rate. Third, draw a graph that showsthe change in the equilibrium.e) Why is the change in national saving larger in (d) than in (c) even if themagnitude of the change in fiscal policy in (c) and (d) are the same?

Given information C=50+c(Y-T) I=300-20r Y=2000 T=900 G=1500 C=0.6

Answered: 4. Apply the classical theory. Consider…

4. Apply the classical theory. Consider a hypothetical economy described below: Y=C+I+G C = 50+ c(Y - T) I = 300-20r Y = 2,000 T = 900 G = 1,500

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter36: Six Debates Over Macroeconomic Policy

Section: Chapter Questions

Problem 3PA

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Question

ANSWER C, D, E FOR UPVOTE

4. Apply the classical theory. Consider a hypothetical economy described below:
Y=C+I+G
C = 50+ c(Y - T)
I = 300-20r
Y = 2,000
T = 900
G = 1,500
c = 0.6
where Y is output, C is consumption, I is investment, G is government purchases, Tis
taxes, and ris real interest rate in percent.
c) Suppose taxes are reduced by 80. First, calculate private saving, public saving,
and national saving. Second, find the new equilibrium interest rate. Third,
draw a graph that shows the change in the equilibrium.
d) Instead of reducing taxes by 80, suppose government purchases are increased
by 80. First, calculate private saving, public saving, and national saving.
Second, find the new equilibrium interest rate. Third, draw a graph that shows
the change in the equilibrium.
e) Why is the change in national saving larger in (d) than in (c) even if the
magnitude of the change in fiscal policy in (c) and (d) are the same?

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