4. (Economics Powertool graph paper required) In the Keynesian cross, assume that theconsumption function is given byC(Y – T) =1425 + 0. 72(Y –T)The planned investment function isI(r) =1800 – 130rand government purchases and taxes are both 120.a. Suppose r = 8. Graph the Keynesian cross where Y goes from 0 to 10,000. Be sure tolabel the axes and the planned expenditure function as PE,.b. What is the equilibrium level of income? Show this on your graph as Yo.c. Make a high resolution graph of the Keynsian cross where the Y-axis goes from 7900to 8000. Be sure to label the axes and the planned expenditure function as PE.

Answer: Given, Consumption function: CY-T=1425+0.72Y-T Planned investment function: Ir=1800-130r…

Answered: 4. (Economics Powertool graph paper…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 5PA

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5 2. Suppose the government implements a policy that increases taxes on business investments and increases consumption tax at the same time. Use the market for financial capital to briefly explain the effect of this policy on the real interest rate and Investment in the economy?
Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is an increase in the tax rate on interest income, from 20% to 25%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to Fall/Rise and the level of investment spending to decrease/Increase Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to Fall/Rise and the level of investment to Fall/Rise . Scenario 3: Initially, the government's budget is…
3 QUESTION 2 Explain what the consumption function shows, and describe what is held constant along the consumption function.
34. The table below shows aggregate values for a hypothetical economy. Suppose this economy has real GDP equal to potential output. Potential GDP $14 000 Government purchases $2100 Investment $300 Consumption $10 000 Net tax revenues $2000 TABLE 25-3Refer to Table 25-3. What is the level of public saving for this economy? -$100 $200 $300 -$200 $500
43. The table below shows aggregate values for a hypothetical economy. Suppose this economy has real GDP equal to potential output. Potential GDP $14 000 Government purchases $2100 Investment $300 Consumption $10 000 Net tax revenues $2000 TABLE 25-3Refer to Table 25-3. What is the level of national saving for this economy? $2000 $1900 $1800 $2500 $1500
10) Suppose net taxes are $50 billion. Government spending is $125 billion. Investment is $50 billion and consumption is $100 billion. What is national savings? A) 50 billion B) -50 billion C) 75 billion D) -75 billion.
16 A borrower cannot become a saver if the rate of interest decreases, but might become a saver if the rate of interest increases. Is this true or false? Carefully explain your answer (which must prove or disprove each part of the statement) using any appropriate diagrams.
54. Consider the long-run theory of investment, saving, and growth. Which of the following statements concerning national saving is true? An increase in the rate of saving will lead to a short-run reduction in national income, but to higher economic growth in the long run. A country's saving rate is unrelated to its growth rate. An increase in the rate of saving will lead to a reduction in consumption and therefore to both a short-run and a long-run decrease in national income. An increase in the rate of saving will cause an immediate increase in national income, but may cause a drop in national income in the long-run. An increase in the rate of saving will always be offset by a reduction in private investment.

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