Assume That GDP (Y) Is 5,000

question 132

Essay

Assume that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 1,200 + 0.3(Y - T) -
50 r, where r is the real interest rate. Investment (I) is given by the equation I = 1,500 - 50r. Taxes
(T) are 1,000 and government spending (G) is 1,500. a.What are the equilibrium values of C, I, and r?
b.What are the values of private saving, public saving, and national saving?
c.Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 - 50r. What are the new equilibrium values of C, I, and r?
d.What are the new values of private saving, public saving, and national saving?

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Definitions:

Treasury

Refers to the department within a government or organization that is responsible for managing the institution's revenue, spending, and debt.

IFRS

International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that aim to bring consistency to accounting language, practices, and statements globally.

Reserves

Funds or assets set aside to cover future expenses, losses, or liabilities.

Asset Revaluations

The process of adjusting the book value of a company's assets to reflect their current market values.