Consider the impact of a cut in the interest rate set by the central bank (the "policy rate"), which causes banks to lower interest rates for both borrowers and lenders. Select one or more: a. Borrowers like Julia will definitely be better off O b. Borrowers like Julia will definitely increase their current consumption O c. If Marco is a saver (not an investor) he will definitely be worse off O d. If Marco is a saver he will definitely decrease his consumption

Consider the impact of a cut in the interest rate set by the central bank (the "policy rate"), which causes banks to lower interest rates for both borrowers and lenders. Select one or more: a. Borrowers like Julia will definitely be better off O b. Borrowers like Julia will definitely increase their current consumption O c. If Marco is a saver (not an investor) he will definitely be worse off O d. If Marco is a saver he will definitely decrease his consumption

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter34: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 4CQQ

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Suppose that the typical consumer has a salary of $30,000 in 2017. His salary grows by 2% per year. What can we say about his ability to pay for his consumption basket over time? (A) He can never pay for his consumption basket without going into debt. (B) In 2017 and 2018, he can pay for his own consumption, but will be unable to in 2019 and 2020 without taking on debt. (C) From 2017-2019, he can pay for his own consumption, but will be unable to in 2020 without taking on debt. (D) He can always pay for his own consumption basket without taking on debt.
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Consider an economy called Xanadu for which desired aggregate consumptiondepends on income, Y. and the real interest rate, r, according toCd =100+0.7Y - 200r.Xanadu's GDP is Y = 1000 and government spending on goods and services is G=180. Xanadu's desired future capital stock is given byK* = 140 - 100ucwhere luCdenotes the user-cost of capital. The price of capital is PK =2, thephysical depreciation rate is d =0.1 and the existing capital stock is K0= 50. Trapital stock between any period t and the following period t+1 evolves accordng toKt+1 = It+(1-d)Kt where It the level of investment. Assume throughout that net factor payments from abroad (NFP) is equal to zero.Suppose instead that Xanadu is a small open economy facing a world interest rate of 1%. It follows that Xanadu's current account position is equal toA) -16B) -51C) -6D) -8
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