Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 13, Problem 5PA
To determine
The private saving, public saving , national saving, investment and equilibrium real interest rate.
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Economists from Funlandia have collected the following information about the economy (all measured in billions of bucks): Y = 12, C= 9, T = 2, and G = 2.5. The economists also estimate the investment function is I = 2 – 0.5r where r is the country’s real interest rate expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the 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 saving?
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.
Chapter 13 Solutions
Principles of Macroeconomics (MindTap Course List)
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- Economists in Funlandia, which has a closed economy, have collected the following information about the economy for a particular year: Y = 11,500 C = 7,000 T = 1,300 G = 1,900 The economists also estimate that the investment function is: I 3,200 - 100r where r is the country's real interest rate, expressed as a percentage. Complete the following table by calculating private saving, public saving, national saving, investment, and the equilibrium real interest rate. Component Private Saving Public Saving National Saving Investment Equilibrium Real Interest Rate Amountarrow_forwardEconomists in Funlandia, which has a closed economy, have collected the following information about the economy for a particular year: YY = = 10,00010,000 CC = = 6,0006,000 TT = = 1,5001,500 GG = = 1,7001,700 The economists also estimate that the investment function is: II = = 3,300−100r3,300−100r where rr is the country’s real interest rate, expressed as a percentage. Complete the following table by calculating private saving, public saving, national saving, investment, and the equilibrium real interest rate. Component Amount Private Saving Public Saving National Saving Investment Equilibrium Real Interest Ratearrow_forwardThe following table contains data for a hypothetical closed economy that uses the dollar as its currency. Suppose GDP in this country is $1,175 million. Enter the amount for government purchases. National Income Account Value Government Purchases (GG) Taxes minus Transfer Payments (TT) 225 Consumption (CC) 625 Investment (II) 300 Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding table. National Saving (S) = = $ million Complete the following table by using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table. Private Saving = = $ million Public Saving = = $ million Based on your calculations, the government is running a budget (a. surplus, b. deficit).arrow_forward
- Explain how the current level of investment depends on the following factors: 1) the current level of national income; 2) the current level of the interest rate; 3) the expected net profits in future time periods; 4) the expected interest rates in future time periods; 5) the current level of profit.arrow_forwardConsider an economy described by the following equations:Y=C + I +GY=7,000G=4000T=2,000C=150+0.75(Y-T)I=1,000-50rc. Now suppose the G rises by 1,000. Compute private saving, public saving, andnational saving and show a graphical representation of your answer.arrow_forwardEconomists 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?arrow_forward
- Suppose GDP in this country is $660 million. Enter the amount for government purchases. National Income Account Government Purchases (G) Taxes minus Transfer Payments (T) Consumption (C) Investment (I) Private Saving = Complete the following table by using national income accounting identities to calculate national saving. In preceding table. National Saving (S) = $ Public Saving = $ = $ Value (Millions of dollars) Complete the following table by using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table. million million million 195 300 210 calculations, use data from the Based on your calculations, the government is running a budgetarrow_forwardThe following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each individual scenario. (graph in image) Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is an increase in the tax rate on interest income, from 20% to 25%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to (a. fall, b. rise) and the level of investment spending to (a. increase, b. decrease). Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases…arrow_forwardA media company wants to know how much consumers spend in a closed economy. The answer is not readily available, but we know the following: Consumption: C = 50 + 0.6(Y - T) • Investment: 1 = 40-500 i • Taxes: T = 2C . Government spending: G = 20 where Y is GDP and i is the interest rate. At the time of the analysis, the central bank made sure that the interest rate. was 4% What is the level of consumption C? Select one: a 155 b. 170 c. 195 d. 220arrow_forward
- 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. Calculate the national saving.arrow_forwardConsider a closed economy that is characterized by the following equations: Y = C +1+ G (1) C = 500 + 0.75(Y-T) (2) | = 375-25r (3) T = 500 (4) G = 500 (5) m = m, (6) m. = 1000 (7) m, = 0.5Y (8) m, = -50r (9) Where Y is the GDP, C is private consumption expenditure, I is the Investment expenditure, G is government expenditure, T is tax revenues, M̟ is money supply, M, is transaction demand for money. M, is the speculative demand for money and r is the interest rate (in % points). a) Derive (m/P) the demand for real money balances equation (where P is the aggregate price level.) b) Derive the IS and LM equations of the economy (Express Y as a function of r and assume Pis fixed at 1.0.) c) Calculate the short-run equilibrium values of Y and r in the economy.arrow_forwardConsider the expressions T-G and Y-T-C. Which of the following statements is correct? Each one of these is equal to national saving. Each one of these is equal to public saving. The first of these is private saving; the second one is public saving. The first of these is public saving; the second one is private saving.arrow_forward
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