The table below depicts the level of gross investment at various interest rates in the economy. Real Interest Rate Year 1 Gross Investment Demand Year 2 Gross Investment Demand 7% 6 S 4 3 $25,000 50,000 75,000 100,000 125,000 $15,000 30,000 45,000 60,000 75,000 Instructions: Enter your answers as a whole number. a. In year 1, if the real interest rate is 5%, what will gross investment be in the economy? $ b. In year 2, a recession reduces investment demand. If the real interest rate remains at 5%, what will gross investment be in the economy? $ c. Suppose the government enacts expansionary fiscal policy and funds this action through borrowing. Real interest rates increase to 7% as a result of this action. What will the new level of gross investment be in year 2? $ d. The change in gross investment due to increased government borrowing is known as O crowding out. O an economic contraction. O investment loss.

The table below depicts the level of gross investment at various interest rates in the economy. Real Interest Rate Year 1 Gross Investment Demand Year 2 Gross Investment Demand 7% 6 S 4 3 $25,000 50,000 75,000 100,000 125,000 $15,000 30,000 45,000 60,000 75,000 Instructions: Enter your answers as a whole number. a. In year 1, if the real interest rate is 5%, what will gross investment be in the economy? $ b. In year 2, a recession reduces investment demand. If the real interest rate remains at 5%, what will gross investment be in the economy? $ c. Suppose the government enacts expansionary fiscal policy and funds this action through borrowing. Real interest rates increase to 7% as a result of this action. What will the new level of gross investment be in year 2? $ d. The change in gross investment due to increased government borrowing is known as O crowding out. O an economic contraction. O investment loss.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.2P

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