Suppose the following equations describe the relationship between the long-run shares of spending in GDP and the interest rate (R), measured in decimal fractions (that is, R = 0. 05 means that the interest rate is 5 percent).
Equations: C/Y* = 0. 7 – 0. 2(R -. 05) and I/Y* = 0. 2 – 0. 8(R -. 05)
X/Y* =. 0 – 0. 95(R -. 05) and G/Y* =. 2
Use algebra to determine the values of the interest rate and the long-run shares of spending in GDP.
R =
C percentage =
%
I percentage =
%
X percentage =
%
G percentage =
%
