Macro HW

# Macro HW - Questions for Review#7 What makes the demand for...

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Questions for Review: #7 What makes the demand for the economy’s output of goods and services equal the supply? The equilibrium interest rate makes the economy’s output of goods and services equal the supply. If the interest rate is too high, the level of investment will be lower, as will the demand for goods and services. If is too low, then investment will be too high, and the demand will be greater than the supply. When it is balanced, the demand will equal the supply. Problems and Applications: #9 A) Compute private saving, public saving, and national saving. a. Private Saving: Y-T-C= (5000)-(1000)-[250 + .75(5000-1000)] = 4000 – [250+3000] = 750 b. Public Saving: T-G= (1000)-(1000) = 0 c. National Saving: Private Saving + Public Saving = (750) + (0) = 750 B) Find the equilibrium Interest Rate - Y-C-G=I(r) = (5000)-(250+.75[5000-1000])-(1000) = 1000 – 50r (5000) – (3250) – (1000) = 1000 – 50r 750 = 1000 – 50r -250 = -50r r = 5% C) Suppose G = 1250. Compute private saving, public saving, and national saving. a. Private Saving: Y-T-C= 750 b. Public Saving: T-G=1000-1250=-250 c.

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