Consider an economy in which the consumption, investment and production functions are as follows. C=90 +0.7(Y-T) I = 250-20r F(K, L) = AK¹/21/2 The capital and labor supply are equal to 100 each, A-10, G = 200 and T200. Compute the equilibrium values of output, overall labor income, consumption, public savings, national savings, investment, and the interest rate. Suppose now government spending increases to G=300 (everything else stays the same). What happens to output, consumption, savings, investment and the interest rate? Compute the new values for these variables.

Consider an economy in which the consumption, investment and production functions are as follows. C=90 +0.7(Y-T) I = 250-20r F(K, L) = AK¹/21/2 The capital and labor supply are equal to 100 each, A-10, G = 200 and T200. Compute the equilibrium values of output, overall labor income, consumption, public savings, national savings, investment, and the interest rate. Suppose now government spending increases to G=300 (everything else stays the same). What happens to output, consumption, savings, investment and the interest rate? Compute the new values for these variables.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider an economy in which the consumption, investment and production functions are as follows.C = 90 + 0:7(Y - T)I = 250 - 20r F(K;L) = AK1=2L1=2The capital and labor supply are equal to 100 each, A=10, G = 200 and T = 200. Compute theequilibrium values of output, overall labor income, consumption, public savings, national savings,investment, and the interest rate.Suppose now government spending decreases to G=100 (everything else stays the same). Whathappens to output, consumption, savings, investment and the interest rate? Compute the newvalues for these variables.
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