Suppose that an economy can be described by the following equations: Y=C + I + G, Y=5,000, G= 1,000, T=1,000, C = 250 + 0.75(Y-T), I = 1,000 – 50r.

Suppose that an economy can be described by the following equations:

Y=C + I + G,

Y=5,000, G= 1,000, T=1,000,

C = 250 + 0.75(Y-T),

I = 1,000 – 50r.

a.      In this economy, compute private saving, public saving, and national saving

b.     Find the equilibrium interest rate (measured in percentage points).

c.      Now suppose that G rises to 1,250. Compute private saving, public saving and national saving.

d.     Find the new equilibrium interest rate.