Q. Consider an economy described by the following equations:
Y = 10K.3L.7
(round Y to the nearest 1000)
C = 250 + 0.75(Y-T)
I = 1000 - 50r
G = 1000
T = 1000
K = 500
L = 500
a. Compute private saving, public saving, and national saving.
b. Compute total labor income and total capital income.
c. Find the equilibrium interest rate.
d. Scenario 1: Suppose the government increases G to 1250. Compute private saving, public saving, and national saving and the new equilibrium interest rate.
e. Scenario 2: Set G back to 1000. Suppose the labor force doubles to L = 1000. Compute private saving, public saving, and national saving. Compute total labor income and total capital income. Find the equilibrium interest rate.