Economics: Principles, Problems, & Policies (McGraw-Hill Series in Economics) - Standalone book
20th Edition
ISBN: 9780078021756
Author: McConnell, Campbell R.; Brue, Stanley L.; Flynn Dr., Sean Masaki
Publisher: McGraw-Hill Education
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Chapter 1.A, Problem 3AP
To determine
Construct an equation and predict the savings.
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Suppose that when the interest rate on loans is 16 percent, businesses find it unprofitable to invest in machinery and equipment. However, when the interest rate is 14 percent, $5 billion worth of investment is profitable. At 12 percent interest, a total of $10 billion of investment is profitable. Similarly, total investment increases by $5 billion for each successive 2-percentagepoint decline in the interest rate. Describe the relevant relationship between the interest rate and investment in a table, on a graph, and as an equation. Put the interest rate on the vertical axis and investment on the horizontal axis. In your equation use the form i = a + bI, where i is the interest rate, a is the vertical intercept, b is the slope of the line (which is negative),and I is the level of investment.
4. Mateo is deciding how many dollars to consume today and how many to consume next
week. We earns $1,000 each week and earns a real interest rate of p = 0.01 on any money
saved today. He also needs to pay the same interest rate if he borrows money today and
repays it next week. If his utility function is U (C₁, C₂) = cc₂, where c₁ is units of consumption
today and c₂ is units of consumption next week, how many units will he consume this week?
Suppose two successive levels of disposable personal income are $13.8 and $18.8 billion, respectively, and the
change in consumption spending between these two levels of disposable personal income is $3.65 billion, then the
MPS will be equal to
O 0.25
O 0.27
O 0.35
O 0.65
O 0.73
Chapter 1 Solutions
Economics: Principles, Problems, & Policies (McGraw-Hill Series in Economics) - Standalone book
Ch. 1.2 - Prob. 1QQCh. 1.2 - Prob. 2QQCh. 1.2 - Prob. 3QQCh. 1.2 - Prob. 4QQCh. 1.A - Prob. 1ADQCh. 1.A - Prob. 2ADQCh. 1.A - Prob. 3ADQCh. 1.A - Prob. 1ARQCh. 1.A - Prob. 2ARQCh. 1.A - Prob. 1AP
Ch. 1.A - Prob. 2APCh. 1.A - Prob. 3APCh. 1.A - Prob. 4APCh. 1.A - Prob. 5APCh. 1.A - Prob. 6APCh. 1.A - Prob. 7APCh. 1.A - Prob. 8APCh. 1 - Prob. 1DQCh. 1 - Prob. 2DQCh. 1 - Prob. 3DQCh. 1 - Prob. 4DQCh. 1 - Prob. 5DQCh. 1 - Prob. 6DQCh. 1 - Prob. 7DQCh. 1 - Prob. 8DQCh. 1 - Prob. 9DQCh. 1 - Prob. 10DQCh. 1 - Prob. 11DQCh. 1 - Prob. 1RQCh. 1 - Prob. 2RQCh. 1 - Prob. 3RQCh. 1 - Prob. 4RQCh. 1 - Prob. 5RQCh. 1 - Prob. 6RQCh. 1 - Prob. 7RQCh. 1 - Prob. 1PCh. 1 - Prob. 2PCh. 1 - Prob. 3PCh. 1 - Prob. 4PCh. 1 - Prob. 5PCh. 1 - Prob. 6PCh. 1 - Prob. 7PCh. 1 - Prob. 8P
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- If consumers spend of a change in their disposable income, then a tax increase of $100 would lower saving by $40. O 20 percent 40 percent O 60 percent O 80 percent 70 percentarrow_forwardThe table given below shows the disposable income and consumption of a household. In the table below, saving: Table 9.1 Disposable Income ($) Consumption ($) 1,000 800 1,100 880 1,200 960 1,300 1,040 1,400 1,120 O is negative at a disposable income of $1,400. O is negative at a disposable income of $1,000. O decreases as disposable income increases. O remains constant as disposable income increases.arrow_forwardTable 1A.3.1 y Z 4 1 6 2 Select one: a. 8 e. 3 Refer to Table 1A.3.1. Assuming y is plotted on the vertical axis, the slope of the line is 10 12 4 5 LO constant at -2. b. -2 when x is between 1 and 3. c. -2 when x is between 1 and 3, and then +2 when x is between 4 and 5. d. -2 when x is between 4 and 5. constant at +2.arrow_forward
- > A Moving to another ouestion will save this response. Question 15 Investment ($8) Real Domestic Product, GDP ($B) Refer to the diagrams. Other things equal, an interest rate decrease will O A. shift curve A to the left and shift curve B lownward. O 8. leave curve A in place but shift curve B upward. OC leave curve A in place but shift curve 8 downward. O D. shift curve A to the right and shift curve B upward. > A Moving to another question will save this response. Expected Rate of Return, r, and Real Interest Rate, I (%) Investment (SB)arrow_forward5. LO 2,5 A consumer receives income y in the current period and income y' in the future period, and pays taxes of t and t' in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. This consumer faces a constraint on how much he or she can borrow, much like the credit limit typically placed on a credit card account. That is, the consumer cannot borrow more than x, where x < we-y+t, with we denoting lifetime wealth. Use diagrams to determine the effects on the consumer's current consumption, future consumption, and saving of a change in x, and explain your results.arrow_forwardFrom the diagram below we can see that: B 51.5 50 Julia's IC 0- 4950 Consumption now ($) Select one or more: O a. Julia would give up more than one unit of current consumption to get one additional unit of future consumption. O b. The marginal rate of transformation of future into current consumption is 1.5. c. Julia is indifferent between points A and B. O d. Julia values an additional unit of consumption now more highly than an additional unit of consumption later. Consumption later ($)arrow_forward
- According to the text, a "multiplier" is used as an assessment and evaluation tool for several reasons. Which of the following is NOT a reason for using a multiplier? Seleet one: O 1. A multiplier represents the amount of times one dollar will be spent before it leaks out into the cconomy. O 2. A multiplier is used to assess overall return on investment for one dollar spent. 3. A multiplier is used to discount a future expenditure in terms of current dollars that needs to he spent. O 4. A multiplier is used to evaluute the effectiveness of one event or property compured to another.arrow_forward$620 Personal Consumption Expenditures Saving 50 200 Government Purchases 750 Net Domestic Product Statistical Discrepancy 180 Gross Investment 780 National Income 220 Exports Imports 240 760 Personal Income Refer to the accompanying data (all figures in billions of dollars). The net investment for this economy is O 1) $200. 2) $20. 3) $230. 4) -$20.arrow_forwardTECHNICAL Suppose that permanent income is calculated as the average of income over the past five years – that is YP = (Y + Y-1 + Y-2 + Y-3 + Y-4 Suppose further that consumption is given by C = 0.9YP a. If you have earned $20000 per year for the past 10 years. What is your permanent income? b. Suppose that next year (period t + 1) you earn $30000. What is your new YP? c. What is your consumption this year and next year? d. What is your short run MPC and long run MPC? e. Assuming you continue to earn $30000 starting in period t+ 1, graph the value of your permanent income in each period using the initial YP equation provided above.arrow_forward
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