Calculate the equilibrium interest rate.
Consider the closed economy of country A where KI = 0. In year 2009, government expenditure (G) is $300 billion, the total tax collected (T) is $900 billion and tax being transferred (TR) is $200 billion. The loanable fund market is currently in equilibrium, and the total demand equation (including SG) is DLF: r =0.04 - 0.000025Q, where r is the real interest rate, and that private saving, SP, equals $800 billion at equilibrium
Answer: We have the private saving equals $800 billion in equilibrium, that is, plug in Q*=800 in into the demand for LF, we got that r*= 0.04-0.000025*800=0.04-0.02=0.02 or 2%.
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Refer to Figure 6-10. The supply curve on which price elasticity changes at every point is shown in
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