Answered: In Classical theory, Saving may…

Business

Economics

In Classical theory, Saving may increase due to decrease in Interest Rate

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter9: Classical Macro Economics And The Self Regulating Economy

Section: Chapter Questions

Problem 4QP

See similar textbooks

Related questions

Q: In a closed economy, if households expect future income to be lower than expected and firms expect…

A: In economics, 'expectations' refers to forecasts or opinions held by decision-makers regarding…

Q: Use the closed classical economy to analyze the effects of a decrease in taxes on real output,…

A: Answer - Need to find-

Q: What might deter a policymaker from trying to raise the rate of saving?

A: Higher saving implies fewer resources are needed to make more consumption goods to produce capital…

Q: Consider a country whose economic structure matches the assumptions of the classical model. After…

A: According to the classical model economy is at full employment constantly and that wages and costs…

Q: A tax law change that successfully encourages saving will interest rates, which leads to investment…

A: Equilibrium in the loanable funds market occurs at the intersection of demand and supply curves of…

Q: According to the supply and demand model for saving, in a closed economy, an increase in the…

A: There exists equality between savings (S) and investment (I) In classical macroeconomic models. It…

Q: There is recently an increase in private saving in Canada. Assume this occured by a drop in…

A: A loanable funds market is where households, who save some proportion of their money, enter the…

Q: Is it possible for total saving to fall when people become more thirfty?

A: Answer: The paradox of Thrift was introduced by J.M.Keynes, this theory explains when individuals…

Q: Suppose the real interest rate is higher than the equilibrium interest rate. We can predict that a.…

A: Investment has an inverse relationship with interest rate. It has a downward sloping curve. Savings…

Q: “An increase in a country's population is likely to raise the real interest rate.

A: The IS curve represents the equilibrium in the goods market. The equilibrium in goods market is…

Q: Investment is driven by all of the following except, the buying of stocks and bonds A on the open…

A: Investment refers to the economic activity in which people use their money in productive activities…

Q: Explain how the Keynesian view differs from the classical view with respect to saving. Explain…

A: Classical economists do not believe in government intervention in economic activities. They have…

Q: In which of the following situations is it most advantageous to be saving? Select one: A. The real…

A: Inflation is basically an increase in the value of commodities and services over a certain period of…

Q: The classical theory explained interest as a reward for

A: To find: What is interest as reward.

Q: According to the life-cycle income hypothesis, if the retirement age increases but life expectancy…

A: The life-cycle hypothesis is an economic concept how people spend and save money throughout the…

Q: If there is a rise in the real interest rate, how does the quantity of loanable funds demanded…

A: In the loanable funds market, loanable funds are demanded by the firms or businesses because it is…

Q: Describe the Investment Decision for a Simple Investment?

A: A simple investment can be made on the basis of various methods like the payback period, return on…

Q: Complete the following statements. a. Dan saves a portion of his income in an interest-earning…

A: Hey, Thank you for the question. According to our policy we can only answer 3 subparts per question.…

Q: Briefly explain the yearly rate-of-return method that policyowners can use to determine the rate of…

A: A profit from an investment is referred to as a return. It includes any change in the investment's…

Q: Distinguish between saving and investment.

A: An important debate in macroeconomics relates to the relationship between saving and investment.…

Q: Consider a loanable funds market of Pakistan. Suppose, if government want to implement the policy to…

A: In classical theory, the equilibrium interest rate in the economy is determined by the loanable…

Q: the classical economists, if the quantity of money that people wanted to save was greater than the…

A: Answer to the question is as follows :

Q: the equilibrium real interest rate in some country is quite low. What could be three possible…

A: Interest rate levels are an element of the availability and demand of credit: a rise within the…

Q: Consider a loanable funds market of Pakistan. Suppose, if government want to implement the policy to…

A: Demand for loanable funds shows a inverse relationship between the interest rate and quantity of…

Q: The Economist article, "Low interest rates leave savers with few good options", states that savers…

A: Poeple save money for different reasons. Savings allow people to meet future expenses. Setting cash…

Q: The importance of income in determining savings has persisted since the time of Keynes. Why have…

A: Keynes: It refers to the economic theory under which economy's total spending and its effect are…

Q: Why is there a trade-off between the amount of consumption that people can enjoy today and the…

A: Why is there a trade-off between the amount of consumption that people can enjoy today and the…

Q: Describe the simple investment?

A: Investment refers to buying financial assets like shares and bonds to earn interest rates. Rate of…

Q: If Congress instituted an investment tax credit, the interest rate would Select one: a.rise and…

A: a. rise and saving would rise

Q: Which theory is called as the neo classical theory of the rate of interest

A: According to the given question A neo classical theory of the rate of interest is basically an…

Q: (Life-Cycle Hypothesis) According to the life-cycle hypothesis, what is the typical pattern of…

A: As per the life-cycle theory, an individual's saving examples throughout his or her life time take…

Q: Briefly explain how an increase in interest rates affects consumer spending. investment spending,…

A: The increase in interest rates is a monetary policy instrument implemented by the central bank. It…

Q: Given the expected relationship between the real interest rate and investment, how would you explain…

A: Real interest rate: - The real interest rate is the inflation-adjusted interest rate. Real interest…

Q: Suppose the government must increase taxes in order to increase spending. Now assume Congress wants…

A: Hi! thank you for the question but as per the guidelines, we only answer three parts of a question…

Q: Explain Three ways that a reduced rate of interest influences real capital investment.

A: Answer - Need to find- Explain Three ways that a reduced rate of interest influences real capital…

Q: Explain why changes in government spending are viewed as nearly always affecting national saving,…

A: The financing cost acclimates to bring reserve funds and investment into balance. The upward line…

Q: In the context of the Irving Fisher two-period model, if a person is a saver (i.e., C1 < Y1), a fall…

A: Answer: If a person is a saver and the interest rate falls then the future consumption (C2) will…

Concept explainers

Public Saving

Public saving deals with the amount which has been in excess after meeting all the obligatory expenses and investment of the government. Taxes are collected by the government to meet its day-to-day expenditures. The obligatory expenses include all those expenses which are mandatory for the government. It cannot be avoided as it is inevitable.

Question

In Classical theory, Saving may increase due to decrease
in Interest Rate

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Which theory is called as the neo classical theory of the rate of interest
Suppose the government must increase taxes in order to increase spending. Now assume Congress wants to increase spending on education without decreasing spending somewhere else. For each variable state if it will INCREASE, DECREASE or REMAIN UNCHANGED. In at least one complete sentence state WHY this change will occur. Be specific. Private Saving (Sp): Consumption: (C) Government Saving (Sg) Total Saving: (S) Real Interest Rates: (r) Investment: (I)
Soon after his election in 1992, President Clinton proposed reducing government spending and increasing taxes For each variable state if it will INCREASE, DECREASE or REMAIN UNCHANGED. In at least one complete sentence state WHY this change will occur. Be specific. Private Saving (Sp): Consumption: (C) Government Saving (Sg) Total Saving: (S) Real Interest Rates: (r) Investment: (I)
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 rate
Suppose Wonderland is a closed economy with a consumption function of C =500 + 0.6 x (Y-T).Recently, a legislator proposes to raise the expenditure on infrastructure.How would this affect national saving, real interest rate and investment inWonderland in the long run? Explain using the concept of loanable fund market.
In the context of the Irving Fisher two-period model, if a person is a saver (i.e., C1 < Y1), a fall inthe real interest rate causes: (a) C1 to rise; C2 to fall(b) C1 ambiguous; C2 to fall(c) C1 to fall; C2 ambiguous(d) C1 to fall; C2 to rise
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 – 100 r, 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 rate.
Assume that GDP ( y) is 6.000. Consumption (C) is given by the equation C= 600 + 06(Y-T). Investment (I )is given by the equation I=2,000- 100r, where r is the real rate of interest in percent. Taxes (T) are government spending (G) is also 500 a. What are the equilibrium values of C, I, and r? b) What are the values of private saving, public saving, and national saving? ·
Per the classical economists, if the quantity of money that people wanted to save was greater than the amount that people wanted to invest, the interest rate would fall. True or False
Explain how higher saving leads to a higher standardof living. What might deter a policymaker fromtrying to raise the rate of saving?
] In the loanable funds market model, assuming everything else is constant, which curve (supply of funds or demand for funds) is affected if there is an increase in national saving? How will equilibrium real interest rate and equilibrium quantity of loans change?
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 deficit