Explain how each of the following actions will affect the level of planned investment spending and unplanned inventory investment. Assume the economy is initially in income–expenditure equilibrium. a. The Federal Reserve raises the interest rate. b. There is a rise in the expected growth rate of real GDP. c. A sizable inflow of foreign funds into the country lowers the interest rate.

Explain how each of the following actions will affect the level of planned investment spending and unplanned inventory investment. Assume the economy is initially in income–expenditure equilibrium. a. The Federal Reserve raises the interest rate. b. There is a rise in the expected growth rate of real GDP. c. A sizable inflow of foreign funds into the country lowers the interest rate.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

See similar textbooks

Similar questions

6. You are given the following data concerning Freedonia, a leg- endary country: (1) Consumption function: C = 200 + 0.8Y (2) Investment function: I = 100 (3) AE = C + I (4) AE = Y a. What is the marginal propensity to consume in Freedonia, and what is the marginal propensity to save? b. Graph equations (3) and (4) and solve for equilibrium income. C. Suppose equation (2) is changed to (2´) I = 110. What is the new equilibrium level of income? By how much does the $10 increase in planned investment change equilibrium income? What is the value of the multiplier?
Explain what happens to consumption, investment, and the interest rate when the government increases taxes. Show graphically the effect of increased taxes when saving is not dependent on interest rate.
Which of the following would be most likely to increase consumption spending? Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. a A reduction in consumer credit card debt b A drop in stock prices c A higher interest rate d The expectation of lower future prices
The fluctuations in the income level that result from changes in investment spending depend only on the magnitude of the changes in investment spending but not on the size of the MPC tend to be larger if the income tax rate (t) is larger tend to be larger with a larger MPC tend to be larger the larger the marginal propensity to import tend to be larger with a larger MPS
What is the meaning of "animal spirits"? How do these relate to planned investment spending and to unplanned investment spending?
Governments attempt to stimulate economies by offering firms temporary investment tax credits. Explain the effects of this measure on investment spending. Would you expect a permanent or temporary measure to have more effect.
Explain and compare the following terms: Saving intensity and break-even investment intensity.
Very briefly summarize the relationships shown by (a) the consumption schedule, (b) the saving schedule, (c) the investment demand curve, and (d) the multiplier effect. Which of these relationships are direct (positive) relationships and which are inverse (negative) relationships? Why are consumption and saving in the United States greater today than they were a decade ago?
Study the scenario and complete the question(s) that follow(s): Silesia You are provided with the following information about an imaginary economy called Silesia. Use the information provided in the table to answer the questions below. Government expenditure 400 Exports 250 Autonomous imports 50 Autonomous consumption 150 Investment Expenditure 300 Full-employment output 2040 Marginal propensity to consume 0.75 Marginal propensity to import 0.15 Таx rate 0.25 5.1 Derive and calculate the consumption function for the data provided. Show all formulas and calculations used. 5.2 Calculate autonomous spending. Show all formulas and calculations used. 5.3 Calculate the multiplier. Show all formulas and calculations used. Round off your final answer to 1 decimal. 5.4 Calculate the equilibrium level of income, using the values calculated in 5.2 and 5.3 above. Show all formulas and calculations used. 5.5 Calculate the government surplus or deficit at the equilibrium level of income. Show all…
You are given the following data concerning Freedonia, a leg-endary country:(1) Consumption function: C = 200 + 0.8Y(2) Investment function: I = 100(3) AE C + I(4) AE = Ya. What is the marginal propensity to consume in Freedonia,and what is the marginal propensity to save?b. Graph equations (3) and (4) and solve for equilibrium income.c. Suppose equation (2) is changed to (2 ́) I = 110. What is thenew equilibrium level of income? By how much does the$10 increase in planned investment change equilibriumincome? What is the value of the multiplier? d. Calculate the saving function for Freedonia. Plot this sav-ing function on a graph with equation (2). Explain why theequilibrium income in this graph must be the same as inpart b.
Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output.
What would be the level of saving if the real GDP (Y) were at $7 trillion? what is the level of desired investment at this level? What forces are at work at a real GDP of $7 trillion? What will be the equilibrium level of real GDP?