What name is given to the maximum quantity that an economy can produce given its existing levels of labor, physical capital, technology, and institutions? O O Potential GDP Cheese The Wealth Effect The Interest Rate Effect
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What name is given to the maximum quantity that an economy can produce given its existing levels of labor, physical capital, technology, and institutions? O O Potential GDP Cheese The Wealth Effect The Interest Rate Effect
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- Explain the difference between saving andinvestment as defined by a macroeconomist. Whichof the following situations represent investment andwhich represent saving? Explain.a. Your family takes out a mortgage and buys a newhouse.b. You use your $200 paycheck to buy stock in AT&T.c. Your roommate earns $100 and deposits it in hisaccount at a bank.d. You borrow $1,000 from a bank to buy a car to usein your pizza delivery business.If the investment curve was horizontal and the prices increased? Explain what will happen to interest rate and quantity of money? Using graph.assume that as the economy booms, the demand for business and consumer loans rises significantly while the supply of funds and loans remains constant. As a result, the market interest rate for business and consumer loans rises to 20% per year. The government implements a ceiling on interest rates of 15% ab year and as a result
- Recently, the economies of China and India have begun to grow very rapidly. This increases their citizens’ income and wealth. In turn, these citizens increase their savings in their country and also in the United States. a. When foreign savings enter the U.s. loanable funds market, which curve is affected—supply or demand? How is this curve affected? b. How would you graph the U.s. loanable funds market both before and after the increase in foreign savings? c. How does the change in foreign savings affect both investment and future output in the United states?A year ago a country reduced the tax rate on all interest income from 20% to 10%. During the year private saving was $500 billion as compared to $400 billion the year before the tax reform. Taxes on interest income fell by $10 billion. Assuming no other changes in income, or government revenues or spending, which of the following is correct? a. the substitution effect was larger than the income effect; national saving rose b. the substitution effect was larger than the income effect; national saving fell c. the income effect was larger than the substitution effect; national saving rose d. the income effect was larger than the substitution effect; national saving fellSuppose 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)
- If the maximum potential combination of consumer and capital goods produced by an economy has increased over time, which of the following is true? a. Marginal tax rates have increased due to contradictory fiscal policy. b. Keynesian policy initiatives have allowed for increased consumption of both consumer and capital goods. c. New physical capital has been introduced to firms throughout the economy. d. Resources are being utilized inefficiently at this combination of goods and services. e. Monetary policy authorities have effectively decreased bank reserves through open market operations.Explain the difference between saving and investment as defined by a macroeconomist. Which of the following situations represent investment and which represent saving? Explain.a. Your family takes out a mortgage and buys a new house.You use your $200 paycheck to buy stock in Africel.Your roommate earns $100 and deposits it in his account at a bank.You borrow $1,000 from a bank to buy a car to use in your pizza delivery business.The interest rate is 7 percent. Use the concept of present value to compare $200 to be received in 10 years and $300 to be received in 20 years.A company has an investment project that would cost $10 million today and yield a payoff of $15 million in 4 years.Should the firm undertake the project if the interest rate is 11 percent? 10 percent? 9 percent? 8 percent?Can you figure out the exact cutoff for the interest rate between profitability and nonprofitability?a) What generally happens to the major macroeconomic variables such as GDP, unemployment rate, and inflation rate during an economic recession? b) Define economic expansion using the reference terms of actual GDP and potential GDP. c) Explain how investment spending and interest rate related. What is the reason behind such a relationship? d) Find the correlation coefficient between interest rate and Real Investment. Does this (actual) value support the theoretical relationship between the variables? Explain. (e) Explain the importance of investment spending for the economy. Only typed answer
- Draw the loanable funds market for 30-year fixed rate mortgages with the equilibrium rate at 5.13% and the equilibrium total amount of mortgages at $12.0 trillion. a> For the sake of simplicity, assume that mortgages are issued and financed through “banks” (I know some of you work in the mortgage, real estate, or finance industry and know the minute details of the mortgage market, but let’s just keep it simple). If people are willing to save more money in “banks,” how will this market be affected? (i.e., which curve(s) will shift, and in which direction?) b> What will happen to the equilibrium quantity of loans after the event in part a? What will happen to the equilibrium interest rate for 30-year fixed rate mortgages after the event in part a?PLEASE ANSWER ALL THE QUESTIONS. THEY ARE THE SAME PART OF ONE QUESTION.a. Consider a small open economy Atlantis, under the Specific Factors Model. The economy can produce only two goods: wheat and cloth. The specific factor for wheat production is land and the specific factor for cloth production is capital. The labor is the mobile factor used in both industries. Analyze the effects on the output of the two goods, wheat and cloth and the real wage of labor if Atlantis experiences an increase in its stock of labor. b. Now, consider the same economy of Atlantis, under the Heckscher-Ohlin model. In this case, the production of wheat and cloth require both labor and capital. Wheat is more labor intensive and cloth is more capital intensive. Analyze the effects on the output of the two goods, wheat and cloth and the real wage of labor if Atlantis experiences an increase in its stock of labor.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.