Consider a Competitive Economy in Which Factor Prices Adjust to Keep

question 24

Essay

Consider a competitive economy in which factor prices adjust to keep the factors of production fully employed, and 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: $$\begin{array} { l } L = \bar { L } , K = \bar { K } , G = \bar { G } , T = \bar { T } \\Y = A K ^ { \pi } L ^ { ( 1 - \omega ) } \\Y = C + I + G \\C = C ( Y - T ) \\I = I ( r )\end{array}$$ How does an increase in government spending, holding other factors constant, affect the level of: a. public saving?
b. private saving?
c. national saving?
d. the equilibrium interest rate?
e. the equilibrium quantity of investment?

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Definitions:

Hemolyzed

Refers to the bursting or destruction of red blood cells, leading to the release of hemoglobin into the surrounding fluid.

Crenated

Describes a process where cells, typically red blood cells, shrink due to osmosis, resulting in a notched or scalloped appearance.

Phagocytized

The process by which cells engulf and digest solid particles or other cells.

Normal

Referring to a condition or parameter that falls within the expected range for a given population or system.