Consider an extension of the model from the lecture, in which aggregate consumption decreases in the...

 

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Consider an extension of the model from the lecture, in which aggregate consumption decreases in the real interest rate: C = 100 + 0.25(Y - T) - 1000r. Aggregate investments are given by I = io – 1000r. Suppose the government tries to stimulate investments into green energy by subsidizing investments into solar panels. Assume the subsidy raises firms' desired investments, shifting the investment demand curve by Aio = 50. 12 Compute the change in the equilibrium interest rate Ar induced by the subsidy. 13 Compute the corresponding change in the equilibrium level of investments AI induced by the subsidy. Consider an extension of the model from the lecture, in which aggregate consumption decreases in the real interest rate: C = 100 + 0.25(Y - T) - 1000r. Aggregate investments are given by I = io – 1000r. Suppose the government tries to stimulate investments into green energy by subsidizing investments into solar panels. Assume the subsidy raises firms' desired investments, shifting the investment demand curve by Aio = 50. 12 Compute the change in the equilibrium interest rate Ar induced by the subsidy. 13 Compute the corresponding change in the equilibrium level of investments AI induced by the subsidy.

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ANSWER 12 C 100 025YT 1000r is consumption io 1000r is Investment level AC change in consumptio... View the full answer