Consider an economy described by the following equations:
Y = C + I + G,
Y = 5,000,
G = 1,000,
T = 1,000,
C = 250 + 0.75(Y − T),
I = 1,000 – 50 r.
a. In this economy, compute private saving, public saving, and national saving.
b. Find the equilibrium interest rate (measured in percentage points).
c. Now suppose that G rises to 1,250. Compute private saving, public saving, and national saving.
d. Find the new equilibrium interest rate.