disscussionsectionhandout7fall2007

disscussionsectionhandout7fall2007 - Econ 102: Fall 2007...

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Econ 102: Fall 2007 Discussion Section Handout #7 Question #1 Consider the market for loanable funds in Odiland, with demand and supply given by: D: i = 36 – (.2)I S: i = (.05)I where i is the interest rate (in percent) and I is the level of investment (in millions). a) Find the market equilibrium interest rate and level of investment. Now the Odiland government has decided to build a dam. Originally, the Odiland government budget was balanced, but this project will give the government a deficit of $20 million. b) Give the equations for the new supply and demand curves after the government decides to build the dam. c) Solve for the new market equilibrium interest rate and total investment. d) How much private investment has been “crowded out” by the government deficit? e) Assume that Odiland has a closed economy. How much does household consumption fall as a result of the government deficit if total output and net taxes remain the same? Question #2
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disscussionsectionhandout7fall2007 - Econ 102: Fall 2007...

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