This preview shows page 1. Sign up to view the full content.
Unformatted text preview: decreases. Putting the new G into the equations above: 8 pnvate "" 750 8public TG = 1,000 1,250 =250. Thus, 8:::: 8private + 8public = 750 + (250) 500. d. Once again the equilibrium interest rate clears the market for loanable funds: 8=1 500 = 1,000 50r Solving this equation for r, we find: r = 10%. 7. To determine the effect on investment of an equal increase in both taxes and government spending, consider the national income accounts identity for national saving: National Saving [Private Saving] + [Public Saving] [Y T C(Y  TI] + [T  0]. We know that Y is fixed by the factors of production. We also know that the change in consumption equals the marginal propensity to consume (MPC) times the change in disposable income. This tells us that ~ational Saving [!1.T (MPC x ( !1.T))] + [!1.T !1.G] :::: !1.T + (MPC x !1.T)] + 0 = (MPC  1) !1.T....
View
Full
Document
This note was uploaded on 10/15/2010 for the course ECON Econ 104B taught by Professor Cannotremeberban? during the Summer '10 term at UC Riverside.
 Summer '10
 CannotremeberBan?
 National Income

Click to edit the document details