Consider the following model of a closed economy: - Y= AK^1/2 L^1/2
- Y d = C + I + G - C = 200 + 0.8(Y−T) - I = 2000 − 20,000r - K^s = 400 - L^s = 225 - A = 10 - G = 500 - T = 1000 a. According to classical macroeconomic theory, what must the real wage (W/P) and real rental price of capital (R/P) be to establish equilibrium in the labor and capital markets? b. What values of real aggregate income (Y), private saving (SH), and national saving (S) result from full employment of labor and capital? c. What must investment (I) and the interest rate (r) be to establish equilibrium in the market for loanable funds?