Assume that equilibrium GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.6Y. Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate in percent. No government exists. In this case, the equilibrium real interest rate is:
A)2 percent.
B)5 percent.
C)10 percent.
D)20 percent.

Question

Quizplus · Accepted Answer

At equilibrium, Y = C + I. Substituting the given equations: 5000 = (500 + 0.6*5000) + (2000 - 100r). Solving this gives r = 5 percent.

Assume That Equilibrium GDP (Y) Is 5,000