An economy has full-employment output of 5000. Government Purchases are 1000. Desired consumption and desired investment are given by
Cd
=3000 - 2000r +0.10Y
I
d
=1000 - 4000r
where Yis output and ris the real interest rate. The real interest rate that clears the goods market is
equal to
(a) 1.25%.
(b) 2.50%.
(c) 8.33%.
(d) 25.00%.
Answer: C
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