Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 16, Problem 10PA
Subpart (a):
To determine
Expansionary fiscal policy, investment accelerator, and interest rate sensitivity to investment.
Subpart (b):
To determine
Expansionary fiscal policy, investment accelerator, and interest rate sensitivity to investment.
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A number of articles published in the Wall Street Journal in the pastyear convince Americans to save more in financial markets andintermediaries to prepare for retirement. The ______ curve in theloanable funds market shifts ______, driving the equilibrium interestrate ______.a. Demand, right, upb. Demand, left, downc. Supply, right, downd. Supply, left, up
Assume the economy is starting at point B in the graph below.
Interest Rate (percent per year)
D
4
a. an interest rate cut?
E
B
F
Investment demand
Investment demand
Rate of Investment (billions of dollars per year)
Which point demonstrates the effects on investment of
2
1
From point B to (Click to select)
b. an interest rate cut accompanied by decreased sales expectations?
From point B to (Click to select)
As interest rates rise, the effect on aggregate demand is to
Select one:
a. increase firm borrowing and investment spending.
b. increase only firm borrowing.
c. reduce consumer borrowing and consumption spending.
d. increase consumer borrowing and saving.
Chapter 16 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
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- The image attached, is a screen shot of the question. The question is: If the marginal propensity to consume was 0.8, low large would each of the following need to be in order to restore full-employment equilibrium? A. A tax increase ________billion B. A government spending cut $_________billion C. A cut in income transfers $________billion. I need to know how to figure this out. Again the screen shot of the question with the graph it attached.arrow_forwardGovernments attempt to stimulate economics by offering firms temporary investment taxcredits. Explain the effects of this measure on investment spending. Would you expect apermanent or temporary measure to have more effect?arrow_forwardSuppose a government decides to pass a tax cut, while keeping the level of government spending the same. How can the government finance the tax cut? What is the impact of the tax cut on public saving? Will private saving be affected and, if so, how? If households save most of (but not all) the tax cut, how will this affect investment? How will this affect the equilibrium interest rate? and why?arrow_forward
- Consider an economy with no government, imports, or exports, and with fixed prices and interest rates. Let C = 150 + 0.60Y and I = 50. 8. What is the value of the marginal propensity to consume? * 0.5 0.7 0.6 0.9arrow_forwardWhich of the following would not cause shift in the investment demand curve as the above graph shows? Select one: a. Business taxes b. Expectations c. Changes in real interest rates d. Acquisition, maintenance, and operating costs e. Technological changearrow_forwardCalculate the value of marginal propensity to save if savings changes by $315 and the income changes by $670arrow_forward
- How do consumption and investment spending affect aggregate expenditures and output over the business cycle? Which is more responsible for volatility - consumption or investment spending or both? Explain your choice. How do government actions affect consumption and investment?arrow_forwardConsider an economy described as follows: Y = C+1+G Y= 8,000. G= 2,500. T 2,000. C- 1,000 + 2/3(Y-T). 1-1,200-100r. 'n this economy, compute private saving, public saving, and national saving. How much is the marginal propensity to consume? 1. 2. 3. Find the equilibrium interest rate.arrow_forward1.a)Draw an A.D/A.S graph showing inflationary gap. b)Draw an A.D/A.S graph showing a recessionary gap. c)Using the same graphs you have drawn in A and B, show what the long run equilibrium position would be in each case if the government did nothing(i.e.,let the economy self-adjust) 2.Explain how savings function is derived from the consumption function, and how the saving schedule and graph of the saving function are constructedarrow_forward
- Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion. a. If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (MPC) to be? b. Now suppose the economists allow for crowding out. Would their new estimate of the MPC be larger or smaller than their initial one?arrow_forwardNow consider an economy in which the government lowers its spending. In the long run, the result would be _____________ in the price level and _____________ in real output. an increase; an increase a decrease; no change a decrease; a decrease None of the listed options is correct. no change; a decreasearrow_forward3. Answer the following numerical questions about the IS-FX model. a. The consumption function is C = 1.5 + 0.5(Y – T). What is the marginal propensity to consume? What is the marginal propensity to save? b. The trade balance is TB = 5(1 – 1/E) – 0.2(Y – 8). What is the marginal propensity to consume foreign goods? What is the marginal propensity to consume home goods? c. The investment function is I = 3 – 10i. What is investment when the interest rate i is equal to 5%? d. Assume government spending is G. Add up the four components of demand and write down the expression for D. e. Assume forex market equilibrium is given by I = (1/E – 1) + 0.15, where the two foreign return terms on the right are expected depreciation and the foreign interest rate. What is the foreign interest rate? What is the expected future exchange rate?arrow_forward
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