Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 4, Problem 6NP
a)
To determine
The equation relating desired national saving, Sd, to real interest rate and output.
b)
To determine
The real interest rate that clears the goods market.
c)
To determine
The change in equation of desired national saving when government purchases rise to 1440.
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Consider an economy described by the following equations:Y=C + I +GY=7,000G=4000T=2,000C=150+0.75(Y-T)I=1,000-50rIn this economy, compute private saving, public saving and national saving
Assume that in this economy consumption (C) is given by the equation C = 600 + 0.6(Y – T). Investment (I) is given by the equation I = 2,000 – 100r, where r is the real rate of interest in percent terms. Taxes (T) are 500 and government spending (G) is also 500.
What are the values of private saving, public saving, and national saving?
(b). Consider an economy described by the following equations (1
Y =C +I+G
Y = 5000; G = 1000; T = 1000; C = 250 + 0.75 (Y-T); I = 1000-50r
i) In this economy:
(1) Compute national savings
(2) Find equilibrium 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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- (b) Consider a classical economy. Assume that the GDP of an economy is 9000. Consumption is given by the equation C = 600+(3/4)YD-40r, where r is the percentage real rate of interest. Investment is given by the equation / = 1200- 120r. Net exports is given by NX 1500-200€. There is a budget deficit of 500 and government spending is 1500. Finally, suppose the world interest rate is 5. 1 1 (i) For this open economy derive all equilibrium values, all savings values, and also describe whether the current and capital accounts are in deficit or surplus.arrow_forwarda)How much is autonomous comsumption in the economy b)How much investment should be increased to achieve an income of RM 400 millionarrow_forwardSuppose 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)arrow_forward
- Refer to the diagrams. Other things equal, an interest rate increase will: Question 15 options: leave curve A in place but shift curve B downward. leave curve A in place but shift curve B upward. shift curve A to the left and shift curve B downward. shift curve A to the right and shift curve B upward Expanded Rate of Return, r, and Real Interest Rate, I (%) Investment ($B) Investment ($B) A Real Domestic Product, GDP ($B) Barrow_forwardConsider the open-economy model with flexible prices and fixed output from chapter 6. The components of GDP are: C = 100+ 0.75(YT) = 50-9r+G = 50 T = 40 NX = 10-25c where Y = F(K, L) = 400. (a) Suppose that € = 1. Calculate public and private savings, net exports, and r*. (b) Suppose there is an increase in autonomous investment such that the new investment curve is: 1 = 60-9r Demonstrate graphically the effect of this change on savings, investment, the real interest rate, net exports, and the real exchange rate. Your answer should consist of two figures and a brief explanation.arrow_forwardIf nominal GDP for 2016 is valued at R3 625m and nominal GDP for 2017 is valued at R3 812m, then it is definitely true that: (a) This economy experienced economic growth of 5.2%%; (b) The increase in GDP is obviously because of an increase in prices; (c) Real output in this economy increased by 5.2%%; (d) The change in the value of GDP could be the result of a change in prices and/or a change in output.arrow_forward
- If in a given situation, Px = 150, Pm = 180 Zx = 160 , and , then which of the following will be the value of Single Factorial Terms of Trade (Ts) ?arrow_forwardThe good market of a closed economy is at its equilibrium whereat its desired saving equals to investment. As a result what is the equation of real interest rate equilibrium as a function of national income?arrow_forwardQNO: 3 Consider an economy discribed by the followng Equations Y= C +1+ G. C= 250 + .75(Y-T) | = 1000-50r. a) In this economy Computé private saving, public saving and national saving b)Find equilibrium rate of interest c)Now Suppose that G rises to 1,250 Compute private, and National saving. d) find the new equilibrium. Y= 5000 G=1000 |=1000 7:42 pmarrow_forward
- If Y = C+I, saving, S, is defined as S=Y-C and C=cY, what is the ratio of saving to income, S/Y a. 1+c b. 1-c c. c d. 1/(1-c)arrow_forwardThe following graphs depict the market for loanable funds and the relationship between the real interest rate and the level of net capital outflow (NCO) measured in terms of the Mexican currency, the pesoarrow_forward2.1 Question 1 Consider the following model of the economy: Y, =C+I+GY, = 8,000 G, = 2,500 T, = 2,000 C, = 1,000+(y-7) I, = 1,200-100r (a) In this economy, compute private saving, public saving, and national saving. (b) Find the equilibrium interest rate. (c) Now suppose that G is reduced by 500. Compute private saving, public saving, and national saving. (d) Find the new equilibrium interest rate.arrow_forward
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