Consider an economy in which the consumption, investment and production functions are as follows. C =...

  

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Consider an economy in which the consumption, investment and production functions are as follows. C = 90+0.7(Y-T) I = 250 - 20r F(K, L) = AK¹/2 [1/2 The capital and labor supply are equal to 100 each, A=10, G = 200 and T = 200. Compute the equilibrium values of output, overall labor income, consumption, public savings, national savings, investment, and the interest rate. Suppose now government spending increases to G=250 (everything else stays the same). What happens to output, consumption, savings, investment and the interest rate? Compute the new values for these variables. Consider an economy in which the consumption, investment and production functions are as follows. C = 90+0.7(Y-T) I = 250 - 20r F(K, L) = AK¹/2 [1/2 The capital and labor supply are equal to 100 each, A=10, G = 200 and T = 200. Compute the equilibrium values of output, overall labor income, consumption, public savings, national savings, investment, and the interest rate. Suppose now government spending increases to G=250 (everything else stays the same). What happens to output, consumption, savings, investment and the interest rate? Compute the new values for these variables.

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To find the equilibrium values of output overall labor income consumption public savings national sa... View the full answer