Principles of Macroeconomics
6th Edition
ISBN: 9780073518992
Author: Robert H. Frank, Ben Bernanke Professor, Kate Antonovics, Ori Heffetz
Publisher: McGraw-Hill Education
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Chapter 8, Problem 2RQ
To determine
Explain the national saving
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Suppose you have a monthly income of $1000, $850 in monthly expenses, and you can put money in a savings account that yields a monthly interest rate of 4%.
Now suppose you have an opportunity to invest your money at a 12% return. Further suppose you are able to borrow at 3%. Assuming you invest all of your money and then borrow against your future payout, show your trade-off between present and future consumption. If you still need to consume $850 in the present, how much will you have to spend in the future?
Using the demand and supply of loanable funds, demonstrate the effect of the following on the interest rate. As a result, what would you expect to be the impact of the change on growth? (LO9-3)
a-Government increases spending.
b-Businesses become more productive.
c-The people as a whole save more.
Suppose the base year bundle of goods X, Y, and Z is:
(X^(b), Y^(b), Z^(b))= (5,700,60)
and the base year (vector of) prices is:
(Px^(b),Py^(b), Pz^(b))=(1000,5,25)
The following year the (vector of) prices is:
(Px^(b+1), Py^(b+1), Pz^(b+1))= (1010,5.05,27.50)
1) Compute the inflation using a Laspeyres Price Index, like the original form of the Consumer Price Index(CPI).
2) Compute the inflation index an alternative way. Calculate the price increase for each good separatelyand then take a weighted average of these price increases, using as weights the budget shares spent on eachgood in the base year. For example, for good X use weight
Sx^(b)= (Px^(b)X^(b))/(Px^(b)X^(b)+ Py^(b)Y^(b)+Pz^(b)Z^(b))
Please show all work very confused
Chapter 8 Solutions
Principles of Macroeconomics
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