Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 29, Problem 29.3.10PA
To determine
The effect on the domestic investment spending.
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Q-3:
B.
The following graph shows a relationship between saving (S), investment (I) and world interest rate (r*); given that r*> r, where r is domestic interest rate.
Graphically show and interpret the impacts of following policy measures on saving (S), investment (I), and net exports (NX):a) Change in fiscal policy at homeb) Change in fiscal policy abroadc) An increase in investment demand
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Consider a small country that is closed to trade, so its net exports are equal to zero. The following equations describe the economy of this country in billions of dollars, where C is consumption, DI is disposable income, I is investment, and G is government purchases:
C�
= =
30+0.8×DI30+0.8×DI
G�
= =
5050
I�
= =
6060
Initially, this economy had a lump sum tax. Suppose net taxes were $50 billion, so that disposable income was equal to Y – 50, where Y is real GDP. In this case, this economy's aggregate output demanded was ___________ .
Suppose the government decides to increase spending by $10 billion without raising taxes. Because the spending multiplier is ____________ , this will increase the economy's aggregate output demanded by ____________ .
Now suppose that the government switches to a proportional tax on income of 10%. Because consumers retain the remaining 90% of their income, disposable income is now equal to 0.90Y. In this case, the economy's aggregate output…
Chapter 29 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 29 - Prob. 29.1.1RQCh. 29 - Prob. 29.1.2RQCh. 29 - Prob. 29.1.3RQCh. 29 - Prob. 29.1.4PACh. 29 - Prob. 29.1.5PACh. 29 - Prob. 29.1.6PACh. 29 - Prob. 29.1.7PACh. 29 - Prob. 29.1.8PACh. 29 - Prob. 29.1.9PACh. 29 - Prob. 29.1.10PA
Ch. 29 - Prob. 29.1.11PACh. 29 - Prob. 29.2.1RQCh. 29 - Prob. 29.2.2RQCh. 29 - Prob. 29.2.3RQCh. 29 - Prob. 29.2.4RQCh. 29 - Prob. 29.2.5PACh. 29 - Prob. 29.2.6PACh. 29 - Prob. 29.2.7PACh. 29 - Prob. 29.2.8PACh. 29 - Prob. 29.2.9PACh. 29 - Prob. 29.2.11PACh. 29 - Prob. 29.2.12PACh. 29 - Prob. 29.2.13PACh. 29 - Prob. 29.2.14PACh. 29 - Prob. 29.3.1RQCh. 29 - Prob. 29.3.2RQCh. 29 - Prob. 29.3.3RQCh. 29 - Prob. 29.3.4PACh. 29 - Prob. 29.3.5PACh. 29 - Prob. 29.3.6PACh. 29 - Prob. 29.3.7PACh. 29 - Prob. 29.3.9PACh. 29 - Prob. 29.3.10PACh. 29 - Prob. 29.4.2RQCh. 29 - Prob. 29.4.5PACh. 29 - Prob. 29.4.6PACh. 29 - Prob. 29.4.7PACh. 29 - Prob. 29.4.8PACh. 29 - Prob. 29.5.1RQCh. 29 - Prob. 29.5.2RQCh. 29 - Prob. 29.5.3RQCh. 29 - Prob. 29.5.4PACh. 29 - Prob. 29.5.5PACh. 29 - Prob. 29.5.6PACh. 29 - Prob. 29.5.7PACh. 29 - Prob. 29.1RDECh. 29 - Prob. 29.2RDECh. 29 - Prob. 29.3RDECh. 29 - Prob. 29.4RDECh. 29 - Prob. 29.5RDECh. 29 - Prob. 29.1CTE
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