SA=−20 + 0.4Y
Ig = 25 − 3i
(Advanced analysis) The equations refer to a private closed economy, where S is saving, Ig is gross
Investment, i is the real interest rate, and Y is GDP. If the real interest rate is 5 (percent), investment will
Be
A) $10 and the equilibrium GDP will be $75.
B) $15 and the equilibrium GDP will be $100.
C) $10 and the equilibrium GDP will be $120.
D) $15 and the equilibrium GDP will be $180.

Question

SA=−20 + 0.4Y 
Ig = 25 − 3i
(Advanced analysis) The equations refer to a private closed economy, where S is saving, Ig is gross
Investment, i is the real interest rate, and Y is GDP. If the real interest rate is 5 (percent), investment will
Be
A) $10 and the equilibrium GDP will be $75.
B) $15 and the equilibrium GDP will be $100.
C) $10 and the equilibrium GDP will be $120.
D) $15 and the equilibrium GDP will be $180.

Quizplus · Accepted Answer

Explanation:Substituting i = 5 into the equations, we get:SA = -20 + 0.4Y = -20 + 0.4(75) = 10Ig = 25 - 3i = 25 - 3(5) = 10Therefore, investment will be $10 and the equilibrium GDP will be $75.