An economy has full-employment output of 6,000. Government purchases, G, are 1,000. Desired consumption and desired investment are cd=3,800-2,000r+0.25Y, and = 1,200-3,000r. where Y is output and r is the real interest rate. a. Find an equation relating desired national saving, s, to rand Y. Sd=+r+y

An economy has full-employment output of 6,000. Government purchases, G, are 1,000. Desired consumption and desired investment are cd=3,800-2,000r+0.25Y, and = 1,200-3,000r. where Y is output and r is the real interest rate. a. Find an equation relating desired national saving, s, to rand Y. Sd=+r+y

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Please answer the all parts don't leave last part please it's a request. Thank you
Drive the is curve mathematically anf graphically when investment function is more sensitive to rate of interest
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.
Suppose that conditions in the economy are such that the after-tax expected real interest rate is described by the equationRa = a X gWhere a is a number that depends on how people value their consumption in one period compared with another period, and g is the growth rate of the economy. The a equals 1 when people prefer consumption to be balanced, with the same amount of consumption each period; a may be bigger than the one when people prefer consumption today over consumption in the future, with a being larger and larger the more impatient people are:A - Suppose that a = 2, g = 0.02, the inflation rate is expected to be steady at pi = 0.03, and the tax rate is .40. What are the values of the equilibrium nominal interest rate and the before-tax expected real interest rate?B - Beginning with the situation in part a, if the growth rate of the economy increases to .04, what are the new values of the equilibrium nominal interest rate and the before-tax expected real interest rate?C-…
Real Interest Rate 1₂ 1. 4 FIGURE 25-2 1 11 12 13 -10 Quantity of Investment and Saving (5) Refer to Figure 25-2. Suppose national saving is reflected by NS, and investment demand is reflected by Now suppose the government implements a policy that encourages investment. What is the effect in th market for financial capital? Select one: a. National saving shifts to NS₁, investment demand shifts to 1₁D, and the quantity of national saving rises t b. There is no effect on NS or ID and the quantity of national saving supplied remains at I". c. National saving shifts to NS₁, and the quantity of national saving supplied rises to 12. d. Investment demand shifts to 1₁D and the quantity of national saving supplied rises to 1₁. e. Investment demand shifts to 1₁D, national saving shifts to NS₁, and the quantity of national
Consider an economy described by the following equations: Y = C + I + G AND, Y = 20,000; G = 4,000; T = 4,000; C = 1000 + 0.80(Y − T); : I= 2,500 – 120r. national saving AND the equilibrium real interest rate equal: Select one: a. national saving 2200 AND the equilibrium real interest rate 2.5%. b. national saving 2500,AND the equilibrium real interest rate 2%. c. national saving 4000 AND the equilibrium real interest rate 1.5%. d. national saving 3200 AND the equilibrium real interest rate 2.5%.
Suppose that K(t+3)/N > K(t+1)/N, where K(t+3) is capital in period t+3 and K(t+1) is capital in period t+1. The economy will reach or reached a steady-state (long-run equilibrium) in period __ (choose the best one, given the information available). t+5 t-2. t-1. t
Q3. Consider the following Cobb-Douglas production function: Y = AL K1-0 where 0 = 0.25 Assuming settings of Neo-Classical theory of investment derive the following: a. Function representing the current value of desired stock of capital. b. Current value of desired stock of capital when output is 5 billion $ while rental cost is 0.12. c. Now suppose output is expected to rise to 7 billion $, find corresponding value in desired stock of capital? d. How would you define value of investment in the given context of discussion?
When real interest rates fall, the opportunity cost of current spending ________ and the consumption function shifts ________. A falls; upward B rises; upward C falls; downward D rises; downward
25
Suppose that conditions in the economy are such that the after-tax expected real interest rate is described by the equationRa = a X gWhere a is a number that depends on how people value their consumption in one period compared with another period, and g is the growth rate of the economy. The a equals 1 when people prefer consumption to be balanced, with the same amount of consumption each period; a may be bigger than the one when people prefer consumption today over consumption in the future, with a being larger and larger the more impatient people are:D - Beginning with the situation in part a, if the expected inflation rate declings to 0.01, what are the new values of the equilibrium nominal interest rate and the before tax expected real interest rate?E - From these results, what general conclusions can you draw about the relationship between the nominal interest rate and the rate of economic growth, the tax rate, and the inflation rate? what about the relationship between the before…
3. Effects of a government budget deficit Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate (Percent) 7 National Saving (Billions of dollars) 55 Domestic Investment (Billions of dollars) Net Capital Outflow (Billions of dollars) 30 -15 6 50 40 -10 5 45 50 -5 4 40 60 0 3 35 70 5 2 30 80 10 Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. Market for Loanable Funds 10 O Demand 8 O Supply *+ Equilibrium 20 40 80 60 QUANTITY OF LOANABLE FUNDS REAL INTEREST…