Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 4, Problem 3RQ
To determine
Effects of an increase in the expected real interest rate on desired saving, using income and substitution effects.
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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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- Consider the two-period Neoclassical growth model seen in class. Let the utility function take the logarithmic form U(C)=In C.arrow_forwardSuppose, that a consumer is a saver, who saves some of his first-period income, and interest rate increases. Discuss the income and substitution effects on consumption in both periods. How consumptions in both periods will change?arrow_forwardAPPLIED ECONOMICS Topic: Intertemporal Choice Levinn’s utility function is expressed as the following: U= C1 C2 0.3 where C1 is his first periodconsumption and C2 is his second period consumption. His income in the first period is$2500 and interest rate is at 10%. If at equilibrium, Levinn is neither a borrower nor a lender,then what is his expected income in the second period? Do not copy from othersarrow_forward
- Need answer. Absuletly upvote!! A. Graphically derive the IS curve from the goods market equilibrium. Hint: start from equilibrium in goods market and the analyze the effect of a change in interest rate i on Y.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_forwardBen earns $7,200 this year and zero income the next year. Ben also has an investment opportunity in which he can invest $3,100 and receive $7,000 next year. Suppose Ben consumes $3,000 this year, invests in the project, and consumes $8,205 next year. a. What is the market rate of interest? (Hint: The new market interest rate line EF is parallel to AH.) Market rate % b-1. Suppose the interest rate increases. What will happen to Ben's consumption for this year? If interest rate increases, Ben's consumption (Click to select) ✓ b-2. Is Ben better off or worse off than before the interest rate rise? Ben is (Click to select) ✓off than before the interest rise.arrow_forward
- Consider following equations: Y=C + I +G Y=7,000 G=4000 T=2,000 C=150+0.75(Y-T) I=1,000-50r Now suppose the G rises BY 1,000. Compute private saving, public saving, and national saving. Calculate the new equilibrium interest rate.arrow_forward1) Sandeep consumes (c1, c2) and earns (m1, m2) in periods 1 and 2 respectively. Suppose that the interest rate is r. a) Write down Sandeep's intertemporal budget constraint in present value terms. b) If Sandeep does not consume anything in period 1, what is the most he can consume in period 2?arrow_forwardAPPLIED ECONOMICS Topic: Intertemporal Choice Levinn’s utility function is expressed as the following: U= C1 C2 0.3 where C1 is his first periodconsumption and C2 is his second period consumption. His income in the first period is$2500 and interest rate is at 10%. If at equilibrium, Levinn is neither a borrower nor a lender,then what is his expected income in the second period? Show the graph if possiblearrow_forward
- Find the disposable income when the consumption is $210 in the saving our $ 190arrow_forwardThis person earns $1000 of income today and $2000 income next year. Point C represents his consumption if he doesn't borrow or lend. If the interest rate is 10%, his Consumption Next Year at Point A is? Consumption Next Year A Consumption Today 3,100 B.arrow_forward(A) Derive the equation for the IS curve and LM curve. (B) Compute the equilibirum levels of income, Y and interest rates.arrow_forward
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