Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 21, Problem 10PA
Subpart (a):
To determine
Expansionary fiscal policy, investment accelerator, and interest rate sensitivity to investment.
Subpart (b):
To determine
Expansionary fiscal policy, investment accelerator, and interest rate sensitivity to investment.
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In which of the following circumstances is expansionary fiscal p
In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment? Explain.a. When the investment accelerator is large or when it is small?b. When the interest sensitivity of investment is large or when it is small?
Suppose a government decides to pass a tax cut, while keeping the level of government spending the same.
How can the government finance the tax cut?
What is the impact of the tax cut on public saving?
Will private saving be affected and, if so, how?
If households save most of (but not all) the tax cut, how will this affect investment? How will this affect the equilibrium interest rate? and why?
d. graph of the financial market equilibrium. Label axes, curves, and project on axes the values you found in the previous two questions.
Comment on why the NX=1 has the effect on investment that it does.
e. Now, the government deepens its budget deficit to G-T = 2. For simplicity, assume that output and savings don't react. Find the new quantity of investment supplied.
f. Find the new equilibrium interest rate, and report it here in decimals.
g. graph of the financial market comparative statics. Label axes and curves, specifically label investment supply before and after with I0 and I1. Show on axes how the equilibrium quantity and rental rate change.
Chapter 21 Solutions
Principles of Macroeconomics (MindTap Course List)
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