Consider a Competitive Economy in Which Factor Prices Adjust to Keep

question 7

Essay

Consider a competitive economy in which factor prices adjust to keep the factors of production fully employed. In addition, the interest rate adjusts to keep the supply and demand for goods and services in equilibrium. The economy can be described by the following set of equations:
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Y = AK^a L^{(1 - a)}
Y = C + I + G
C = C(Y - T)
I = I(r)
Suggest at least two policies that a government could use to increase the equilibrium quantity of investment in the economy and carefully explain how these policies produce this result.
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Definitions:

Seasonal Variation

Refers to periodic fluctuations in data or variables that are related to seasonal changes.

Deseasonalized Time Series

Time series data which has been adjusted to remove the effects of seasonal variations.

Seasonal Indexes

A set of numerical values used to adjust for seasonal effects in time series data, allowing for more accurate comparisons across different times of the year.

Seasonal Variation

Refers to periodic fluctuations in data or processes that occur at regular intervals over a year, influenced by the seasons.