Question

A closed economy has full employment level of output (Y) of 7000 (we got this from chapter 3 - the interaction of labor supply and demand). Government purchases, G, are 1600, taxes (T) are 1600 (G and T are our exogenous variables). Desired consumption (Cd) and investment (Id) are:

C^d= 3200+ 0.2(Y-T)- 200r
I^d= 1200- 3000r

Required:
Solve for the desired savings function in intercept -slope form

Answer 1

sd = 2720-200r

Step-by-step explanation:

we have savings function to be this eqiuaton

Sd = Y - C^d

from the question we have here:

Y = 7000

T = 1600

C^d = 3200+ 0.2(Y-T)- 200r

we put these values in the savings function

Sd = 7000 - [3200 + 0.2(7000-1600)-200r

Sd = 7000 - [3200 + 1400 - 320] -200r

Sd = 7000 - 3200 - 1400 + 320 - 200r

Sd = 2720 - 200r