Consider an economy described as follows:
Y = C + I + G
Y = 8, 000
G = 2, 500
T = 2, 000
C = 1000 + 2/3 (Y − T)
I(r) = 1, 200 − 100r
a. Compute private saving, public saving, and national saving.
b. Find the equilibrium real interest rate.
c. Suppose that government expenditures fall by 500: compute the new equilibrium interest rate.