Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 25.A, Problem 3TY
To determine
The equilibrium level of saving.
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Chapter 25 Solutions
Economics: Principles & Policy
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- If consumers decide to increase saving, then C decreases, r decreases, I increases, and Y:arrow_forwardIn the long run, what happens to consumption in the economy when people are saving less? a) remains the same b) cannot tell from the graph c) decreases d) increasesarrow_forwardClassify each of the following based on the macroeconomic definitions of saving and investment. Saving Investment Crystal borrows money to build a new lab for her engineering firm. Hilary purchases stock in Pherk, a pharmaceutical company. Edison takes out a mortgage for a new home in Detroit. Brian purchases a corporate bond issued by a car company.arrow_forward
- Suppose that society decided to reduce consumption and increase investment. Briefly explain what groups in society would benefit from this change?arrow_forwardAgreement and disagreement among economists Suppose that Musashi, an economist from a business administration program in Georgia, and Rina, another economist from a nonprofit institution in the Midwest, are both guests on a popular science podcast. The host of the podcast is facilitating their debate over saving incentives. The following dialogue represents a portion of the transcript of their discussion: Rina: I think it's safe to say that, in general, the savings rate of households in today's economy is much lower than it really needs to be to sustain an improvement in living standards. Musashi: I think a switch from the income tax to a consumption tax would bring growth in living standards. Rina: You really think households would change their saving behavior enough in response to this to make a difference? Because I don't. The disagreement between these economists is most likely due to DIFFERENCES BETWEEN PERCEPTION VERSUS REALITY or DIFFERENCES IN SCIENTIFIC JUDGEMENTS…arrow_forwardExplain why the saving curve slopes upward and the investment curve slopes downward in the saving–investment diagram. Give two examples of changes that would shift the saving curve to the right, and two examples of changes that would shift the investment curve to the right. (Note: insert hand drawn picture(s) into the word file to explain your answer.)arrow_forward
- Explain what happens to consumption, investment, and the interest rate when the government increases taxes. Show graphically the effect of increased taxes when saving is not dependent on interest rate.arrow_forwardAgain, the following graph depicts the market for loanable funds. An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve(s) on the following graph to show the impact of this policy. INTEREST RATE (Percent) pemand Supply QTY OF LOANABLE FUNDS (Billions of dollars) The repeal of the previously existing tax credit causes the interest rate to and the level of investment toarrow_forwardEconomics Use the information provided below to answer the following questions: C= 0.8( y – ty) M d = 0.25y - 30r I = 400 -20r M s /p = 350 G = 500 The disposable income (y d ) is equal to : Select one: a. 1,500 b. 1,300 c. 1,400 d. 1,600arrow_forward
- This question addresses the impact of saving on an economy by examining what happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shows the market for loanable funds. Show the impact of a change in the tax law that successfully encourages saving by shifting either the demand curve (D), the supply curve (S), or both. A tax law change that successfully encourages saving will (increase/decrease) interest rates, which leads to (less/more) investment and economic growth. To better understand how changes in tax laws can affect saving, suppose that Madison, a rising third-year in college, plans to save $550 from her summer job in order to buy textbooks for the upcoming fall semester. Madison's parents are so impressed with her plans that they offer to pay her an additional 30% interest per month on the money she saves, which means that Madison is now earning a large rate of return on her saving. By the end of the…arrow_forwardWith the help of consumption function C=10+0.5Y, calculate savings at an income level of $500arrow_forwardWhat is the difference between consumption and autonomous consumption?arrow_forward
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