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- When long-term interest rates rise, consumption expenditure and investment _______ and aggregate demand _______. A. decrease the same day; decreases a year later B. decrease a year later; decreases a year later C. increase a year later; increases a year later D. decrease about two years later; decreases about two years later thanks !!! zConsider a closed-economy. The economywide expected future marginal product of capital is MPKf = 50 − 0.05K^f , where Kf is the future capital stock. The depreciation rate of capital, δ, is 10% per period. The current capital stock, K, is 900 units of capital. The real price of a unit of capital is 8 unit of output. Firms pay taxes equal to 20% of their output. The consumption equation is C = 100 + 0.6Y −100r, where C is consumption, Y is output, and r is the real interest rate. Government spending equals 150 and full-employment output is 1000. (a) Suppose the current real interest rate is 10% per period. What are the values of the tax-adjusted user cost of capital, the desired future capital stock, and the desired level of investment? (b) When the real interest rate equals 10%, what are the desired levels of consumption and saving (assuming output is at the full-employment level)? 10 (c) Is the goods market in equilibrium when the real interest rate equals 10%? Provide an intuitive…Dear Sir/Madam while studying for my macroeconomics course, I came across this case study that I am struggling with right now. Thank you for your help. Assume the economy is open to capital inflows and outflows and therefore net capital inflow equals imports (IM) minus exports (X). Calculate each of the following. a) X = $125 million IM = $80 million Budget balance = - $200 million I = $350 million Calculate private savings. b) X = $85 million IM = $135 million Budget balance = $100 million Private savings = $250 million Calculate I. c) X = $60 million IM = $95 million Private savings = $325 million I = $300 million Calculate the budget balance. d) Private savings = $325 million I = $400 million Budget balance = $10 million Calculate IM – X.
- When long-term interest rates rise, consumption expenditure and investment _______ and aggregate demand _______. A. decrease the same day; decreases a year later B. decrease a year later; decreases a year later C. increase a year later; increases a year later D. decrease about two years later; decreases about two years later thank you!!Assume the economy is open to capital inflows and outflows and therefore net capital inflow equals imports (IM) minus exports (X). Answer each of the following questions. a) X = $60 millionIM = $95 millionPrivate savings = $325 millionI = $300 million Calculate the budget balance. b) Private savings = $325 millionI = $400 millionBudget balance = $10 million Calculate IM − X.When real interest rates fall, the opportunity cost of current spending ________ and the consumption function shifts ________. A falls; upward B rises; upward C falls; downward D rises; downward
- At a level of real disposable income of $10,000, suppose consumption is $11,000. Given this information, we know with certainty that saving equals $0. $11,000. -$1,000. $1,000.When long-term interest rates rise, consumption expenditure and investment _______ and aggregate demand _______. A. decrease the same day; decreases a year later B. decrease a year later; decreases a year later C. increase a year later; increases a year later D. decrease about two years later; decreases about two years laterHow will planned investment spending change as the following events occur? a) The interest rate falls as a result of Federal Reserve policy. b) The U.S. Environmental Protection Agency decrees that corporation must upgrade or replace their machinery in order to reduce their emissions of sulfur dioxide. c) Baby boomers begin to retire in large number and reduce their savings, resulting in higher interest rates. Thank you very much for your help.
- Q.1.7 An increase of R5 billion in income in a macroeconomy leads to an increase in R3 billion in consumption spending. From this information, we can determine that the marginal propensity to save in this economy is: (2) (a) 0.6; (b) 0.5; (c) 0.3; (d) 0.4Japan and the United States are major trading partners and the exchange rate between the Japanese yen and the United States dollar is determined in a flexible foreign exchange market. (c) Assume instead household savings increased in the United States. Draw a correctly labeled graph of the loanable funds market in the United States, and show the effect of the increase in household savings on the equilibrium real interest rate. (d) Based on the change in the equilibrium real interest rate identified in part (c), what will happen to financial capital flows to the United States?Japan and the United States are major trading partners and the exchange rate between the Japanese yen and the United States dollar is determined in a flexible foreign exchange market. (c) Assume instead household savings increased in the United States. Draw a correctly labeled graph of the loanable funds market in the United States, and show the effect of the increase in household savings on the equilibrium real interest rate. (d) Based on the change in the equilibrium real interest rate identified in part (c), what will happen to financial capital flows to the United States? (e) Based on your answer to part (d), what will happen to the international value of the dollar in the foreign exchange market? Explain. (f) Based on your answer to part (e), will the Federal Reserve buy or sell yen in the foreign exchange market to stabilize the dollar/yen exchange rate? Explain.
