ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- Scenario 1: Individual Retirement Accounts (IRAs) allow workers to shelter a portion of their income from taxation. Suppose the maximum annual contribution to accounts of this type is $6,000 per person. Now suppose there is an increase in the maximum contribution, from $6,000 to $9,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds tofall and the level of investment spending toincrease . Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital within some relevant time period. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate tofall and the level of saving tofall . Scenario 3: Initially, the government's budget is balanced; then…arrow_forwardConsider an economy in which the consumption, investment and production functions are as follows.C = 90 + 0:7(Y - T)I = 250 - 20r F(K;L) = AK1=2L1=2The capital and labor supply are equal to 100 each, A=10, G = 200 and T = 200. Compute theequilibrium values of output, overall labor income, consumption, public savings, national savings,investment, and the interest rate.Suppose now government spending decreases to G=100 (everything else stays the same). Whathappens to output, consumption, savings, investment and the interest rate? Compute the newvalues for these variables.arrow_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_forward
- Please answer to 2 decimal placesarrow_forwardShowarrow_forwardConsider an economy described by the following equations: Y = C + I + G Y = 6100 G = 1100 T = 1100 C = 1000 + .75(Y - T) I = 1100 - 60r in this economy compute private savings, public savings and national savings Find the equilibrium interest rate Now suppose that G rises to 1200. Compute private savings, public savings and national savings. Find the new equilibrium interest rate.arrow_forward
- Please solve Parts D,E,Farrow_forwardConsider 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.arrow_forwardSuppose that the economy is summarized by the following: Technology (Production Function): Yt = 10 (Kt)0.3 (Lte)0.7 Consumption function: Ct = 0.8Yt Depreciation rate: 8% (i.e. δ= 0.08) Population growth: 2% (i.e. n = 0.02) Technological growth: 4% (i.e. g = 0.04) QUESTIONS: Find the steady state (long run) equilibrium values of kte, yet, and cet. Show graphically what would be the effect of a increase of the saving rate to s=0.4? Show graphically what would be the effect of an increase in population growth to 0.04? Assuming that in 2013 the US economy is in the steady state and L2013 = Le2013 = 8, what is the value of ke2014, ye2014, ce2014 , k2014, y2014, and c2014 ? Use your answer to e) to calculate the growth rate of ket, yet, cet , kt, yt, and ct Based on your answers to the previous questions and on your knowledge of how the Solow growth model works, explain what policies should a less-developed country pursue to raise its level of income in the long-run?…arrow_forward
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