Principles of Macroeconomics (12th Edition)
12th Edition
ISBN: 9780134078809
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 8, Problem 3.1P
To determine
To understand how the planned investment is affected by the interest rate.
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Explain how changes in interest rates and rates of return on various investment options will affect the amount of money that businesses are willing to invest to increase output.
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.
True/False and Explain
If the real rate of return on investment is higher in the US than in Canada, capital will tend to flow out of the US and into Canada.
Chapter 8 Solutions
Principles of Macroeconomics (12th Edition)
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- 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?arrow_forward________ Is that type of investment which is not affected by change in the level of output or incomearrow_forwardThe figure below shows the investment demand curve for a fictitious country. Use the information in the figure to answer the question below. Expected rate of return and real interest rate (%) 16 DRHRENDSCSA32IO 15 14 13 12 11 10 9 8 5 Investment Demand 10 20 In stment demand curve 30 40 Investment (billions of dollars) 50arrow_forward
- Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000; C = 6,000; T = 1,500; G = 1,700. The economists also estimate that the investment function is: I =3,300 –100r where r is the country’s real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrium real interest ratearrow_forwardDefine Purchase of Investment.arrow_forwardHow will planned investment spending change as the following events occur? a) The interest rate falls as a result of Federal Reserve policy. b) The U.S. Environmental Protection Agency decrees that corporation must upgrade or replace their machinery in order to reduce their emissions of sulfur dioxide. c) Baby boomers begin to retire in large number and reduce their savings, resulting in higher interest rates. Thank you very much for your help.arrow_forward
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