An economy has government purchases of 1000. Desired national saving and desired investment are given by
Sd
=200 +5000r +0.10Y- 0.20G
I
d
=1000 - 4000r
When the full-employment level of output equals 5000, then the real interest rate that clears the
goods market will be
(a) 1.11%.
(b) 5.56%.
(c) 16.67%.
(d) 21.11%.
Answer: B
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