Consider an economy described by the following equations: Y = C + I + G AND, Y = 5,000; G = 1,000; T = 1,000; C = 250 + 0.75(Y − T); I = 1,000 − 50 r. a. In this economy, compute private saving, public saving, national saving and the equilibrium interest rate. b. If G rises to 1,250, Compute private saving, public saving, and national saving and the new equilibrium interest rate

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Public Saving

Public saving deals with the amount which has been in excess after meeting all the obligatory expenses and investment of the government. Taxes are collected by the government to meet its day-to-day expenditures. The obligatory expenses include all those expenses which are mandatory for the government. It cannot be avoided as it is inevitable.