Assume that a nation has an output level of 250 units per year and that consumption is also 250. Suppose there is a sudden temporary drop in GDP by 18%. What does the long-run consumption path look like if this country has access to global financial markets with an interest rate of 7%?
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- To promote long-run growth, the primary economic function of the financial system is to: Group of answer choices keep interest rates low. provide expert advice to savers and investors. match one person’s consumption expenditures with another person’s capital expenditures. match one person’s saving with another person’s investment.INTEREST RATE (Percent) 4 6 m P D 80 120 160 LOANABLE FUNDS (Dollars) P d Refer to Figure 26-4. Starting at point A, a change in tax laws that encouraged households to save more would likely cause the quantity of loanable funds traded to increase to $160 and the interest rate to fall to 4% (point D). increase to $160 and the interest rate to rise to 7% (point C). decrease to $80 and the interest rate to fall to 4% (point B). decrease to $80 and the interest rate to rise to 7% (point E).Suppose the U.S. has an investment opportunity which costs $200 which will increase output from 100 to 110 per quarter. The investment would take effect after t = 0. What is the marginal product of capital (MPK)? What is the difference in the present value of future income in the U.S. of undertaking the investment if the real world interest rate is 8%? Should the U.S. borrow from abroad to fund the investment and why? TYPO*. Increased output from 100 to 110 per YEAR (not quarter).
- Suppose the U.S. has an investment opportunity which costs $200 which will increase output from 100 to 110 per quarter. The investment would take effect after t = 0. What is the marginal product of capital (MPK)? What is the difference in the present value of future income in the U.S. of undertaking the investment if the real world interest rate is 8%? Should the U.S. borrow from abroad to fund the investment and why?Assume that a nation initially has an output level of 150 units per period and that consumption is also 150 (there is no investment or government spending). Suppose there is a temporary (i.e. one-period) increase in GDP of 16% in period 0. Assume the country has access to global financial markets with an interest rate of 8%. Assume an infinite time horizon for all questions. If this country wants to maintain a smooth consumption path (I.e. constant in all periods, including period 0) what level consumption per period can it attain?Consider the following functions for consumption and investment: C = 1,000 + (2/3)*(Y – T) and I = 1,200 – 100*r. Furthermore, Y = 8,000, G = 2500, T = 2,000. Compute private, public, and national savings for this economy, and find the equilibrium real interest rate (r). Assume that G declines by 500 units. How will it change your answers in part (a)? What happens to the national savings, given everything else, if the public decides to consume less out of their disposable income (assume that the propensity of consume falls by 10 percent)? Given your answer in part (c), what happens to investment and real interest rate? Answer all four.
- Problem Set 4: Saving and Investment Economists in Fantasialand, a closed economy, have collected the following information about the economy for a particular year: Y = 9000; C = 6000; T = 1500; G = 1700. The economists also estimate that the investment function is: I = 3300 - 100r, where r is the country’s real interest rate, expressed as a percentage (i.e. r = 1 means interest rate is one percent). Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate.Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000 C = 6,000 T = 1,500 G = 1,700 The economists also estimate that the investment function is: I = 3,300 – 100 r, where r is the country’s real interest rate, expressed as a percentage. Calculate private savings?Selim has no income in period 1 (consumption now) and an income of 1800Ł in period 2 (consumption later). The current interest rate is 20% (r=0.2) on consumer loans. Based on this information, answer the following questions a. What is the maximum amount that Selim can borrow to spend in period 1? Explain your answer. Can he spend 600 in period 2 and borrow 1000 in period 1?
- QUESTION 5 Neverland is a closed economy that severed all links to the outside world. Its economy can be described by the following consumption and investment curves: Ca(r) = 5000 – 1000r+0.25Y and 1d (r) = 500 – 1800r +0.2Y: Its output is y=13000 and government spending is G = 8000: What is the equilibrium interest rate (in percent)? Note: Type in your answer approximated to two decimal points, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard will automatically delete it and you should not do anything about it.True/False and Explain If the real rate of return on investment is higher in the US than in Canada, capital will tend to flow out of the US and into Canada.What do you expect will happen to investment demand in this country?