Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 8, Problem 9PA
Subpart (a):
To determine
The difficulties in increasing the investment of the economy.
Subpart (b):
To determine
The difficulties in increasing the investment of the economy.
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What does it mean by the logic:
When output is too low, what needed is an increase in demand for goods and services. Investment is one component of demand, and saving equals investment. Therefore, if the government could just convince households to attempt to save more, then investment and output would increase.
Economists often argue that a large increase in government purchases – such as for the military – will crowd out private-sector spending. Use the investment-saving diagram to defend or to refute their premise.
In the graph you've just made, how does a tax on interest income influence the real interest rate and investment? A tax on interest income _______ loanable funds, which _______ the real interest rate and _______ investment.
A. decreases the demand for; raises; decreases
B. decreases the supply of; raises; decreases
C. increases the supply of; lowers; increases
D. increases the demand for; lowers; increases
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Chapter 8 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
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- According to how we model the Loanable Funds market in Ch. 6 (considering household savings and taking (T – G) as government’s net ‘saving,’ which could be negative it there were a budget deficit), which of the following shifts the Supply of Loanable Funds curve to the left? (T = taxes; G = government spending.) Group of answer choices A) higher tax rates on business investment spending B) a change in tastes toward consuming less C) higher budget deficit D) change in tastes toward saving more E) lower budget deficitarrow_forwardHow does a decrease in the tax rate on income earned on saving affect saving, investment, the interest rate, and economic growth?arrow_forwarda. Consider the Market for Loanable Funds in a closed economy. What would be the impacts of the following events on interest rates and investment. i. The government introduces a tax credit for savings accounts of up to $10,000 per year. ii. The government introduces a tax credit for savings accounts of up to $10,000 per year, and at the same time it repeals an investment tax exemption provision. iii. The government raises the tax rates. iv. The government issues bonds worth $10 billion. b. In a closed economy GDP = $1,400, private saving = $225, government budget deficit = $15, and government spending $25 (all numbers are in billions). Calculate national saving, taxes, and consumption. %3Darrow_forward
- Recently, the economies of North Korea and Norway have begun to grow very rapidly. This increases their citizens’ income and wealth as well. In turn, these citizens increase their savings not only in their country, but also in the United States. In this case, which of the following statements is correct? A. The supply of loanable funds decreases as savings increase. B. The supply of loanable funds increases as savings increase. C. The demand of loanable funds decreases as savings increase. D. Both supply and demand of loanable funds increase as savings increase.arrow_forwardRecently, the economies of North Korea and Norway have begun to grow very rapidly. This increases their citizens’ income and wealth as well. In turn, these citizens increase their savings not only in their country, but also in the United States. In this case, which of the following statements is correct? A. The supply of loanable funds decreases as savings increase. B. The supply of loanable funds increases as savings increase. C. The demand of loanable funds decreases as savings increase. D. Both supply and demand of loanable funds increase as savings increase. Clear my choicearrow_forwardIn each part that follows, use the economic data given to find national saving, private saving, public saving, and the national saving rate. a. Household saving = 200 Business saving = 400 Government purchases of goods and services = 120 Government transfers and interest payments = 100 Tax collections = 175 GDP = 2,300 Instructions: Enter your response for the national saving rate rounded to one decimal place. If you are entering any negative numbers, be sure to include a () In front of those numbers. National saving Private saving Public saving National saving rate GOO b. GDP = 6,050 Tax collections = 1,225 Government transfers and interest payments - 400 Consumption expenditures 4,500 Government budget surplus 100 Instructions: Enter your response for the national saving rate rounded to one decimal place, If you are entering any negative numbers, be sure to include a () in front of those numbers. National saving Private saving Public savingNational saving rate 100 c Consumption…arrow_forward
- Show on a graph of the market for saving and investment the effect of the following. (The graph is a basic savings and investment graph). In an effort to improve fiscal conditions, policymakers raise taxes. This results in lower disposable income. Real interest rate (percent per year) 10. 8 6 4 2 SLF 0 1.2 1.4 1.6 DLF 2.0 2.2 1.8 Loanable funds (trillions of 2009 dollars) The savings function [Select] The investment function [Select] The real interest rate [Select] The level of savings and investment [Select]arrow_forwardexplain both in words and diagrammatically how the following government policy affect the economy’s saving and investment. Policy 1: Suppose the government passed a tax reform giving an investment tax credit to any firm building a new factory or buying a new piece of equipment.arrow_forwardSuppose that every additional 3 percentage points in the investment rate boosts GDP growth by 1 percentage point. Assume also that all investment must be financed with consumer saving. Note: Investment rate = Investment/GDP The economy is currently characterized by $12 trillion $2 trillion Consumption: Saving (= Investment): GDP: $14 trillion If the goal is to raise the growth rate by 2 percentage points, a. by how much must investment increase? billion b. by how much must consumption decline? : billionarrow_forward
- Suppose the GDP is $8 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion. assuming this economy is closed, calculate consumption, government purchases national saving, and investment. b. imagine that government start with a balanced budget and then, because of an increase in taxes, start running a budget surplus. graphically analyze the effects of the budget surplus on interest rate, saving and investment if loanable funds means the flow of resources available from private savingarrow_forwardThe Washington Post's headline reads "Business Confidence Reaches Highest Level in 5 Years." A. Draw a correctly labeled graph of the loanable funds market and show the effect of high business confidence on the equilibrium real interest rate. B. Assume the government increases its spending on capital projects and infrastructure. Would financing the increased government spending by borrowing result in a higher, a lower, or the same equilibrium real interest rate? Explain. C. How will the increase in government spending financed by borrowing affect national savings? D. If the expected inflation rate decreases to 0, will the nominal interest rate be greater than, less than, or equal to the real interest rate? Explain.arrow_forwardSuppose Indian government borrows 50,000/- more next year than this year. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the 50,000/- of extra government borrowing.arrow_forward
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