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[MACRO ECONOMICS - NATIONAL SAVINGS
Given data, here we can get to know calculations for national income and
equation for national saving.
1. You are given the following information for the equations for investment demand, private
saving, and the government’s deficit: Id =2400-125r, S= 1,750 + 75r, T-G = -350. Suppose that
this is a closed economy. The equilibrium interest rate is the one at which national savings and
investment demands are equal.
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a. Derive the equation for national saving.
b. Compute the equilibrium interest rate. Compute the amount of investment
demand, private saving, and national saving at the equilibrium interest rate.
c. Suppose that the government budget deficit is cut by $200 billion. Compute the
new equilibrium interest rate. Compute the values of investment demand, private
saving, and national saving at the new equilibrium interest rate.
d. Compare and contrast your answers to parts b and c.
2. Given the information at the beginning of question 1, assume we have a small open economy and
that the foreign inte