Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
expand_more
expand_more
format_list_bulleted
Question
Chapter 18, Problem 8E
To determine
The impact of reducing taxes on investment.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
What would be the level of saving if the real GDP (Y) were at $7 trillion? what is the level of desired investment at this level? What forces are at work at a real GDP of $7 trillion? What will be the equilibrium level of real GDP?
National Income: Where It Comes From and Where It Goes — End of Chapter Problem
If consumption depends on the interest rate, saving will also depend on it. In particular, the higher the interest rate, the greater will be the return to saving. Hence, the supply of loanable funds will be represented by an upward-sloping, rather than a vertical, curve.
National saving is the sum of public saving and private saving. Investment in this analysis is private investment. It does not include public investment.
Suppose that the recent economic outlook in the country of Mountainia has been the opposite. Businesses have postponed planned investments and have begun to accumulate cash. If businesses in Mountainia postpone $12 billion of their planned investments, what would be the maximum expected change in GDP if its marginal propensity to save (MPS) is 0.05?
$ billion
Knowledge Booster
Similar questions
- Please calculate level of GDP in equilibrium, consumption and savings level if you know that: I (investment) = 300 Ca (Autonomous Consumption) = 100 MPS (Marginal Propensity to Save) = 0,1 G (Government Expenditures) = 300 T (net taxe rate) = 0,2arrow_forwardAs a result of this policy, the equilibrium interest rate . Which of the following statements accurately describe the effect of the increase in government borrowing? Check all that apply. National saving decreases by less than $20 billion. Private saving increases by less than $20 billion. Public saving decreases by exactly $20 billion. Investment increases by less than $20 billion. The more elastic the supply of loanable funds, the is the change in national saving as a result of the increase in government borrowing. The more elastic the demand for loanable funds, the the change in national saving as a result of the increase in government borrowing. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. This belief would cause people to save today, which would private saving and the supply of loanable funds. This would the…arrow_forwardThe fluctuations in the income level that result from changes in investment spending depend only on the magnitude of the changes in investment spending but not on the size of the MPC tend to be larger if the income tax rate (t) is larger tend to be larger with a larger MPC tend to be larger the larger the marginal propensity to import tend to be larger with a larger MPSarrow_forward
- Investment can be increased both by reducing taxes on private saving and by reducing the government budget deficit. True or False: It is possible to implement both of these policies at the same time because reducing taxes on private spending has the effect of decreasing the government budget deficit. True False What would you need to know in order to judge which of these two policies would be a more effective way to raise investment? Check all that apply. The responsiveness of private saving to increases in investment The response of private saving to changes in the government budget deficit The elasticity of private saving with respect to the after-tax real interest ratearrow_forwardIn a closed economy, the consumption function is C = 80 + 0.8YD − 20r, where YD is disposable income, taxes T x = 200 and transfers are T r = 100. The investment function is I = 550 − 130r. Output is Y = 1000. Here the real interest rate is measured in percentage points (e.g. for r = 5% use 5 and not 0.05). (D) The government raises its spending by 150 and finances this by borrowing. Find the new equilibrium. Does the crowding out effect takes place? If yes, describe it in detail: what crowds out what. If not, explain why. (E) Instead, the government raises its spending by the same 150 and finances this by raising taxes by an equal amount (to keep the budget balanced). Find the new equilibrium. Does the crowding out effect takes place? If yes, describe it in detail: what crowds out what. If not, explain why. (F) Draw the loanable funds market diagram. Show the initial equilibrium and the two equilibria under the two fiscal policies.arrow_forwardTo find aggregate planned expenditures, which of the following must be added to consumption expenditure? i. net exports ii. investment iii. government expenditure on goods and services i only ii only iii only i and ii i, ii, and iii In the figure above, the shift in the supply of loanable funds curve from SLF1 to SLF3 could be the result of an increase in the real interest rate. an increase in expected future income. a decrease in expected future income. an increase in expected rate of profit. a decrease in the real interest rate.arrow_forward
- Explain and diagrammatically represent the shift in the DLF curve as a result of each of the following: -- a rise in autonomous investment -- a rise in the size of the budget deficit -- a decline in autonomous investment 25. What is autonomous investment?arrow_forwardWhich of the following policies can the government implement to stimulate investment? Group of answer choices Reduce taxes on interest income or capital gains Accelerate businesses' depreciation allowances Reduce budget deficits All of these are correctarrow_forwardIn a closed economy, the gross domestic product is $25,000, consumption is $8,200 and taxes are $3,700. If the national saving is 3,000, if the investment function is represented by I = 3,400-80r, the equilibrium interest rate is: Select one: a. 12% b. 5% c. 3% d. 8% e. None of the answers are correctarrow_forward
- One last time, please consider a closed economy with the following information: • Economic investment = $4500 • Private savings = $3000 Output (income) = $16,000 Consumption = $11,000 This economy has no transfer payments; in other words, total taxes and "net taxes" are the same thing. Carefully following all numeric instructions, calculate this economy's taxes (T). Note that there are no transfer payments.arrow_forwardAfrica's government has increased its spending this year, leading to a growing budget deficit. How will this growing budget deficit affect the economy? Your answer should discuss interest rates, private investment, and aggregate expenditure.arrow_forwardIn a closed economy, the consumption function is C = 80 + 0.8YD − 20r, where YD is disposable income, taxes T x = 200 and transfers are T r = 100. The investment function is I = 550 − 130r. Output is Y = 1000. Here the real interest rate is measured in percentage points (e.g. for r = 5% use 5 and not 0.05). (A) Find net taxes T and government spending G if the government budget is balanced. (B) Derive the total savings function S(r). Do savings depend on the interest rate? If yes, positively or negatively? Why could that happen? (C) Find the equilibrium on the loanable funds market: find, at equilibrium, r, S and I. (D) The government raises its spending by 150 and finances this by borrowing. Find the new equilibrium. Does the crowding out effect takes place? If yes, describe it in detail: what crowds out what. If not, explain why. (E) Instead, the government raises its spending by the same 150 and finances this by raising taxes by an equal amount (to keep the budget…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education