Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 10.5, Problem 3QQ
To determine
Investment
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Problem Set 4: Saving and Investment
Economists in Fantasialand, a closed economy, have collected the following information about the economy for a particular year: Y = 9000; C = 6000; T = 1500; G = 1700. The economists also estimate that the investment function is: I = 3300 - 100r, where r is the country’s real interest rate, expressed as a percentage (i.e. r = 1 means interest rate is one percent). Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate.
Suppose a handbill publisher can buy a new duplicating machine for $500 and the duplicator has a 1-year life. The machine is expected to contribute $550 to the year’s net revenue. What is the expected rate of return? If the real interest rate at which funds can be borrowed to purchase the machine is 8 percent, will the publisher choose to invest in the machine? Explain.
(A) Suppose that in a closed economy GDP is equal to 15,000, taxes are equal to 2,000, Consumption equals 9,000, and government expenditures equal 4,000. What are private saving and public saving?
a. 4000 and –2000
b. 4000 and 2000
c. 2000 and –2000
d. 2000 and 3000
(B) A lower interest rate induces people to
a. save less, so the demand for loanable funds slopes upward.
b. save less, so the demand for loanable funds slopes downward.
c. invest more, so the demand for loanable funds slopes upward.
d. invest more, so the demand for loanable funds slopes downward.
(C) Alex puts $300 into an account when the interest rate is 5 percent. Later he checks his balance and finds he has about $330,75. How long did Alex wait to check his balance?
a. 2
b. 2.5
c. 3
d. 4.5
Chapter 10 Solutions
Macroeconomics
Ch. 10.2 - Prob. 1QQCh. 10.2 - Prob. 2QQCh. 10.2 - Prob. 3QQCh. 10.2 - Prob. 4QQCh. 10.5 - Prob. 1QQCh. 10.5 - Prob. 2QQCh. 10.5 - Prob. 3QQCh. 10.5 - Prob. 4QQCh. 10 - Prob. 1DQCh. 10 - Prob. 2DQ
Ch. 10 - Prob. 3DQCh. 10 - Prob. 4DQCh. 10 - Prob. 5DQCh. 10 - Prob. 6DQCh. 10 - Prob. 7DQCh. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - Prob. 1RQCh. 10 - Prob. 2RQCh. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - Prob. 1PCh. 10 - Prob. 2PCh. 10 - Prob. 3PCh. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - Prob. 7PCh. 10 - Prob. 8PCh. 10 - Prob. 9PCh. 10 - Prob. 10P
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Similar questions
- all else equal, what does a lower interest rate mean for firms? what does a lower interest rate means for savers?arrow_forwardFirst Call Inc. is a cellular phone company. It plans to build an assembly plant that costs $10 million if the real interest rate is 6% a year. If the real interest rate is 5% a year, First Call Inc. will build a larger plant that costs $12 million. And if he real interest rate is 7% a year, First Call will build a smaller plant that costs $8 million. a. Draw a graph of First Call’s demand for loanable funds curve. b. First Call expects its profit from the sale of cellular phones to double next year. If other things remain the same, explain how this increase in expected profit influence it’s demand for loanable fundsarrow_forwardConsider an economy in which GDP is $30 billion. Tax revenue is $7 billion, consumption is $15 billion, and the government has a budget surplus of $2 billion. Show your work in each of the following questions.(c) What is national saving?(d) What is the level of investment?arrow_forward
- 25) Use a saving—investment diagram to explain what happens to saving, investment, and the real interest rate in each of the following scenarios in a closed economy. (a)In an agricultural economy, great weather this year promises a bumper crop next year, leading citizens to expect higher income next year. (b)Government regulations going into effect next year will reduce the marginal product of capital. (c)The government increases lump-sum taxes on citizens. 26) An economy has full-employment output of 5000. Government purchases are 1000. Desired consumption and desired investment are given by Cd = 3000 - 2000r + 0.10Y Id = 1000 - 4000r where Y is output and r is the expected real interest rate. (a)Find the real interest rate that clears the goods market. Assume that output equals full-employment output. (b)Calculate the amount of saving, investment, and consumption in equilibrium. (c)If a shock to wealth causes desired consumption to decline by 200 (so that…arrow_forwardexplain both in words and diagrammatically how the following government policy affect the economy’s saving and investment. Policy 1: Suppose the government passed a tax reform giving an investment tax credit to any firm building a new factory or buying a new piece of equipment.arrow_forwardWhich of the following should NOT be considered as partof fixed investment?1. Toyota buys a new robot for its automobile assembly line.2. Apple computer builds a new factory.3. Exxon increases its holding of bonds and stocks infinancial markets.4. An accountant buys a newly built home for herself and her family.5. None of the above.arrow_forward
- During his first term, President Obama has increased government spending and cut 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)arrow_forwardGive written answer with explanation and conclusion A government policy that would reduce the saving rate is ? a) giving tax breaks to increase the real return that savers receive b) eliminating the social security system c) increasing the government budget surplus by cutting government spending d) switching the tax system to tax consumption instead of incomearrow_forwardA) What will be the new level of consumption at the $ 340 billion level of disposable income? B) What will be the new level of saving?arrow_forward
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