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Finding the share available for nongovernment use

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Unformatted text preview: Rate Equilibrium interest rate: the interest rate that equates the sum of the consumption, investment, and net exports shares of the GDP available for nongovernment use. Determining the Equilibrium Real Interest Rate and the Shares of Spending Determining the Equilibrium Interest Rate A decrease in the share of government purchases relative to GDP will shift the NG/ Y line to the right. Interest rates will decrease, resulting in an increase in C/Y, I/Y, and X/Y, until NG G = 1- Y Y A Decrease in the Share of Government Purchases Determining the Equilibrium Interest Rate Crowding out: a decline in private investment owing to an increase in government spending. A Shift in the Share of Consumption Saving In Chapter 6, we defined national saving (S) as S = Y C G wh...
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