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Unformatted text preview: MINITEST - Answers 1. Consider an economy in long-run equilibrium where planned investment falls by 5 for every 1 percentage-point increase in the interest rate (i.e., - d = -5) and private saving rises by 5 for every 1 percentage point increase in the interest rate (i.e., b = 10 ) . The MPC in this economy is 0.75. a. What is the value of the horizontal shift in national saving from an increase in natural output of 240 240 Y = ; how much of this shift is public and how much is private saving? (10 points). The MPS = .25, therefore the increase in natural output of 240 increases private saving by 60 and does not change public saving; the shift in national saving is 60.. b. What is the change in the equilibrium real interest rate, the level of investment, and consumption? (10 points) At the original interest rate, there is an excess supply of loanable funds of 60. Everytime the At the original interest rate, there is an excess supply of loanable funds of 60....
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This note was uploaded on 03/02/2010 for the course ECON 57 taught by Professor Woglom during the Spring '08 term at UMass (Amherst).
- Spring '08