Suppose that initially in an economy net taxes, T - TR, are equal to $400 while government expenditures are equal to $200. Furthermore, suppose you know that this economy is initially a closed economy. You are told that the demand for loanable funds by businesses is given by the equation r = 10 - (1/100)LFD where r is the interest rate expressed as a percent rather than a decimal and LFD is the quantity of loanable funds demanded. You also know that the supply of private savings (Sp) curve is given by the equation r = 2 + (1/300) Sp where Sp is the quantity of private savings supplied at any given interest rate.
a. Calculate the initial value of government savings, Sg.