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25 February, 08:43

Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000 C = 6,000 T = 1,500 G = 1,700 The economists also estimate that the investment function is : I = 3,300 - 100r where r is the country's real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate.

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  1. 25 February, 09:42
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    Private saving $ 2,500.

    Public saving $ - 200.

    National saving $2,300.

    Investment is equal to saving = 2,300.

    r = 10 percent.

    Explanation:

    Private saving is equal to (Y - C - T) = 10,000 - 6,000 - 1,500 = 2,500.

    Public saving is equal to (T - G) = 1,500 - 1,700 = - 200.

    National saving is equal to (Y - C - G) = 10,000 - 6,000 - 1,700 = 2,300.

    Investment is equal to saving = 2,300.

    The equilibrium interest rate is found by setting investment equal to 2,300 and solving for r:

    3,300 - 100r = 2,300

    100r = 1,000.

    r = 10 percent.
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