Answered: GuideLine Saving National Income 1.…

GuideLine Saving National Income 1. Only one of the lines in this graph does not represent the savings function. It is: A. Line No. 1 B. Line No.2 C. Line No. 3 D. Line No.4

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Please explain in three well-structured paragraphs the impact of a change in the savings rate on the output.
Q. 1: Consider an economy described as follows:Y = C + I + GY= 8000G = 2500T = 2000C = 1000 + 2/3 (Y – T)I = 1200 – 100ra. Compute public savings, private savings and national savings for this economy.b. Find the equilibrium interest rate.c. Now, suppose that T increased by 500, compute public savings, private savings and national savings for this economy.d. What happens to new equilibrium interest rate.
Based on Abel, Bernanke and Croushore, 10th edition, Chapter 4, Numerical Problems No. 1. A consumer is making saving plans for this year and next. She knows her real income after taxes will be $50,000 in both years. Any part of her income saved this year will earn a real interest rate of 10% between this year and next year. Currently, the consumer has no wealth (no money in the bank or other financial assets, and no debts). There is no uncertainty about the future. a) Formally derive the consumer’s intertemporal budget constraint. b) Using the given numerical values rewrite and graph the budget line. c) Find the consumer’s PVLR. The consumer wants to save an amount this year that will allow her to (1) make college tuition payments next year equal to $16,800 in real terms; (2) enjoy exactly the same amount of consumption this year and next year, not counting tuition payments as part of next year’s consumption; and (3) have neither assets nor debts at the end of next year. d) In the…
Suppose the government borrows $20 billion more next year than this year,a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall?b. What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government borrowing.c. How does the elasticity of supply of loanable funds affect the size of these changes?d. How does the elasticity of demand for loanable funds affect the size of these changes?e. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects you discussed in parts (a) and (b)?
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