Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 4, Problem 10RQ
To determine
To find the reason for upward sloping saving curve and downward sloping investment curve. Also, explanation of the reason of rightward shift in saving and investment curve.
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Explain 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.)
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.
Consider the market for loanable fund. Suppose that government started to give tax incentives for investment (so the cost of investment fell.)
Answer which curve (Demand or Supply) would shift to which direction (Left or Right), and answer how the equilibrium saving would change (Decrease or Increase)Curve: Direction: Saving:
Chapter 4 Solutions
Macroeconomics
Ch. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 8RQCh. 4 - Prob. 9RQCh. 4 - Prob. 10RQ
Ch. 4 - Prob. 1NPCh. 4 - Prob. 2NPCh. 4 - Prob. 3NPCh. 4 - Prob. 4NPCh. 4 - Prob. 5NPCh. 4 - Prob. 6NPCh. 4 - Prob. 7NPCh. 4 - Prob. 8NPCh. 4 - Prob. 9NPCh. 4 - Prob. 1APCh. 4 - Prob. 2APCh. 4 - Prob. 3APCh. 4 - Prob. 4APCh. 4 - Prob. 5APCh. 4 - Prob. 6APCh. 4 - Prob. 7APCh. 4 - Prob. 5WWMDCh. 4 - Prob. 6WWMD
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- Classify each of the following scenarios listed in the table below using the macroeconomic definitions of saving and investment. Saving Investment Manuel buys a government bond. Poornima borrows money to build an addition to a lab owned by her engineering firm. Valerie purchases shares of stock in Warm Breeze, a cloud computing company. Shen takes out a loan and uses it to build a new cabin in Idaho.arrow_forwardDraw a diagram to describe this: Marginal consumption Cm decreases -> The amount of money consumed C also decreases => Household saving S (Saving) increases because S = Yd - C -> The supply of loanable funds increases (due to an increase in household savings) -> the lending interest rate decreases (in the condition that the demand for loan funds remains constant)arrow_forwardClassify each of the following based on the macroeconomic definitions of saving and investment. Saving Investment Neha borrows money to build a new lab for her engineering firm. Teresa purchases stock in Pherk, a pharmaceutical company. Sam purchases a new condominium in San Francisco. Lorenzo purchases a certificate of deposit at his bank.arrow_forward
- Again, 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_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_forwardDraw a savings and investment graph. Explain the logic of why investment slopes down and savings slopes up.arrow_forward
- Classify each of the following scenarios listed in the table below using the macroeconomic definitions of saving and investment. Shen purchases a new townhouse in Hartford. Poornima borrows money to build an addition to a lab owned by her engineering firm. Manuel purchases a certificate of deposit at his bank. Valerie purchases stock in Tesqar, a biotech firm. Saving Investment Oarrow_forwardConsumption function C = 32 +0.8 Y. a. Create saving function b. How much is consumption when saving = 0 c. How much income when the savings are 20arrow_forwardExplain the determinants of investment. Include in your answer an explanation of how a change in each determinant affects investment.arrow_forward
- Explain THREE (3) factors that can influence investment in an economy.arrow_forwardThis 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_forwardIn the language of macroeconomics, a person or firm purchases new capital. occurs when a person's income exceeds his consumption, while Which of the following situations represent saving? Check all that apply. You use your $200 paycheck to buy stock in AT&T. Your family takes out a mortgage and buys a new house. You borrow $1,000 from a bank to buy a car to use in your pizza delivery business. Your roommate earns $100 and deposits it in his account at a bank. occurs whenarrow_forward
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