Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 4, Problem 1AP
a)
To determine
The graphical representation of the impact of increasing consumer’s saving on national saving, investment, and the real interest rate.
b)
To determine
The graphical representation of the impact of government announcement for one-time bonus payment to veterans returning from a war on the national saving, investment, and the real interest rate.
c)
To determine
The graphical representation of the impact of investment tax credit on national saving, investment, and the real interest rate.
d)
To determine
The graphical changes that represent the impact of finding of a large number of accessible oil deposits on national saving, investment, and the real interest rate.
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Problem Set 4: Saving and Investment
Economists in Fantasialand, a closed economy, have collected the following information about the economy for a particular year: Y = 9000; C = 6000; T = 1500; G = 1700. The economists also estimate that the investment function is: I = 3300 - 100r, where r is the country’s real interest rate, expressed as a percentage (i.e. r = 1 means interest rate is one percent). Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate.
explain both in words and diagrammatically how the following government policy affect the economy’s saving and investment. Policy 1: Suppose the government passed a tax reform giving an investment tax credit to any firm building a new factory or buying a new piece of equipment.
Suppose the following equations represents a closed economy:
Y= C + I + G
Y = 4000
G = 500
T = 500
C = 500 + 0.7 (Y – T)
I = 1000 – 40r
In this economy, compute the value of consumption (C), private saving, public saving, and national saving. Also, find the equilibrium interest rate (r).
Now suppose that government spending (G) rises (expansionary fiscal policy) to 300. Compute private saving, public saving, and national saving. Also, find the new equilibrium interest rate (r).
In part (b), due to expansionary fiscal policy (increase in government spending), which of the two other components of aggregate demand changes, C or I? Why? (Hint: Note the real interest rate)
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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