Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 23, Problem 3.1P
To determine
To understand how the planned investment is affected by the interest rate.
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Explain how changes in interest rates and rates of return on various investment options will affect the amount of money that businesses are willing to invest to increase output.
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.
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.
Chapter 23 Solutions
Principles of Economics (12th Edition)
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- Assume that in this economy consumption (C) is given by the equation C = 600 + 0.6(Y – T). Investment (I) is given by the equation I = 2,000 – 100r, where r is the real rate of interest in percent terms. Taxes (T) are 500 and government spending (G) is also 500. What are the values of private saving, public saving, and national saving?arrow_forwardExplain why an increase in the interest rate reduces the amount of residential investmentarrow_forward________ Is that type of investment which is not affected by change in the level of output or incomearrow_forward
- The figure below shows the investment demand curve for a fictitious country. Use the information in the figure to answer the question below. Expected rate of return and real interest rate (%) 16 DRHRENDSCSA32IO 15 14 13 12 11 10 9 8 5 Investment Demand 10 20 In stment demand curve 30 40 Investment (billions of dollars) 50arrow_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 –100r where r is the country’s real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrium real interest ratearrow_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 saving?arrow_forward
- 4) Distinguish between the short-run and long-run factors that affect residential investment.arrow_forwardGraphically illustrate (draw) and explain the effect of a sustained increase in savings on the growth of output (Provide explanations)arrow_forwardAssume you have $2,000 autonomous consumption and given $10,000 disposable income did not allow you to save anything. What will be your MPC?arrow_forward
- Assume that GDP (Y) is 6,000. Consumption (C) is given by the equation C= 600+ 0.6(Y- T). Investment (I) is given by the equation I= 2,000 – 100r, where r is the real rate of interest in percent. Taxes (T) are 500 and government spending (G) is also 500. What are the equilibrium values of C, I, and r? What are the values of private saving, public saving, and national saving?arrow_forwardEconomists 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_forwardWhich of the following acts constitute investment according to the economist’s definition of that term? Amazon builds a new headquarters building in the United States. You buy 100 shares of Amazon stock. A department store chain goes bankrupt, and Amazon purchases its stores. Your family buys a newly constructed home from a developer. Your family buys an older home from another family. (Hint: Are any new products demanded by this action?)arrow_forward
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