Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
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Chapter 5, Problem 9QAP
a.
To determine
To explain: The effect of fall in consumer confidence on the equilibrium of the economy.
b.
To determine
To explain: The effect of fall in consumer confidence on consumption, investment and private saving.
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Economists in Funlandia, which has a closed economy, have collected the following information about the economy for a particular year:
YY
= =
10,00010,000
CC
= =
6,0006,000
TT
= =
1,5001,500
GG
= =
1,7001,700
The economists also estimate that the investment function is:
II
= =
3,300−100r3,300−100r
where rr is the country’s real interest rate, expressed as a percentage.
Complete the following table by calculating private saving, public saving, national saving, investment, and the equilibrium real interest rate.
Component
Amount
Private Saving
Public Saving
National Saving
Investment
Equilibrium Real Interest Rate
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.
4.4 This chapter argues that saving and spending behavior
depend in part on wealth (accumulated savings and in-
heritance), but our simple model does not incorporate
this effect. Consider the following model of a simple
economy: C=50+0.8Y+0.1W
I= 200
W= 500
Y=C+I
S=Y-C
If you assume that wealth (W) and investment (I) remain
constant (we are ignoring the fact that saving adds to the
stock of wealth), what are the equilibrium levels of GDP
(Y), consumption (C), and saving (S)? Now suppose that
wealth increases by 100 percent to 1,000. Recalculate
the equilibrium levels of Y, C, and S. What impact does
wealth accumulation have on GDP? Many were
con cerned with the large increase in stock values
in the late
1990s. Does this present a próblem for the
economy?
Explain.
Chapter 5 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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