Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 27, Problem 3RQ
To determine
Calculate the capital stock.
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Manipulate the graph to show what will happen to supply and
demand in the market for loanable funds when the
government budget deficit increases, changing the
equilibrium quantity of loanable funds by 3
percentage points.
Ceteris paribus, what is the new interest rate?
interest rate:
Ceteris paribus, private investment would
increase.
not change.
decrease.
%
20
10
9
Supply
8
Interest rate (%)
7
CO
5
LO
3
2
1
0
0
2
Demand
4 6 8 10 12 14 16 18 20 22 24 26 28
Quantity of loanable funds (% of GDP)
4. Below is a list of domestic output and national income figures for
a certain year. All figures are in billions. The questions that follow
ask you to determine the major national income measures by both
the expenditures and income approaches. The results you obtain
with the different methods should be the same. LO7.4
Personal consumption expenditures
$245
7.
Net foreign factor income
4
Transfer payments
12
Rents
14
Consumption of fixed capital (depreciation)
27
Statistical discrepancy
8.
Social Security contributions
20
Interest
13
Proprietors' income
33
Net exports
11
Dividends
16
Compensation of employees
223
Taxes on production and imports
18
Undistributed corporate profits
21
Personal taxes
26
19
Corporate income taxes
56
Corporate profits
72
Government purchases
33
Net private domestic investment
20
Personal saving
a. Using the above data, determine GDP by both the expenditures
approach and the income approach. Then determine NDP.
b. Now determine NI in two ways: first, by…
The diagram below show the market for financial capital assuming that national income is constant at potential GDP, Y*.
Real Interest Rate
I EL ME
14
FIGURE 25-2
NSO
I 11 12 13
NS1
1
1
Quantity of
Investment
and Saving ($)
Refer to Figure 25-2. Suppose national saving is reflected by NS, and investment demand is reflected by lo. Now suppose the government
implements a revenue-neutral tax policy that encourages investment. What is the effect on the real interest rate?
Select one:
O a. There is no effect on NS or ID, and the interest rate remains at i*.
O b. The real interest rate rises because of the decrease in the budget surplus.
O C. National saving shifts to NS₁, and the real interest rate falls to i3.
O d. Investment demand shifts to 1₁D, and the real interest rate rises to i₂.
O e. The real interest rate falls because of the decrease in the budget surplus.
Chapter 27 Solutions
Economics (Irwin Economics)
Ch. 27 - Prob. 1DQCh. 27 - Prob. 2DQCh. 27 - Prob. 3DQCh. 27 - Prob. 4DQCh. 27 - Prob. 5DQCh. 27 - Prob. 6DQCh. 27 - Prob. 7DQCh. 27 - Prob. 8DQCh. 27 - Prob. 9DQCh. 27 - Prob. 10DQ
Ch. 27 - Prob. 11DQCh. 27 - Prob. 12DQCh. 27 - Prob. 13DQCh. 27 - Prob. 14DQCh. 27 - Prob. 1RQCh. 27 - Prob. 2RQCh. 27 - Prob. 3RQCh. 27 - Prob. 4RQCh. 27 - Prob. 5RQCh. 27 - Prob. 6RQCh. 27 - Prob. 7RQCh. 27 - Prob. 8RQCh. 27 - Prob. 9RQCh. 27 - Prob. 10RQCh. 27 - Prob. 1PCh. 27 - Prob. 2PCh. 27 - Prob. 3PCh. 27 - Prob. 4PCh. 27 - Prob. 5PCh. 27 - Prob. 6PCh. 27 - Prob. 7PCh. 27 - Prob. 8P
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Similar questions
- Change in business inventories Compensation of employees Corporate profits Durable goods Exports Social Security taxes Transfer payments Fixed investment Government spending Imports Net interest Nondurable goods Personal taxes Rental income Services In Exhibit 5-10, compute personal income (PI). Which of the following is correct? O $7,110 billion. O $7,410 billion. $6,740 billion. $7,760 billion. $6.780 billion. 50 5,400 700 600 100 360 300 950 800 150 500 2,000 1,000 200 4,000arrow_forwardFigure 32-1 percent 8 10 20 30 40 50 60 70 $billions Refer to Figure 32-1. In the Figure shown, if the real interest rate is 6 percent, the quantity of loanable funds demanded is O A. $20 billion, and the quantity supplied is $40 billion. O B. $20 billion, and the quantity supplied is $60 billion. O C. $60 billion, and the quantity supplied is $20 billion. O D. $60 billion, and the quantity supplied is $40 billion.arrow_forwardFigure 32-1 REAL INTEREST RATE (Percent) 8 7 50 5 4 3 N Demand Supply 10 20 30 40 50 60 70 80 QUANTITY OF LOANABLE FUNDS (Billions of dollars) Refer to Figure 32-1. If the real interest rate is 7 percent, the quantity of loanable funds demanded is O $70 billion, and the quantity supplied is $10 billion. $10 billion, and the quantity supplied is $70 billion. O $10 billion, and the quantity supplied is $10 billion. O $70 billion, and the quantity supplied is $10 billion.arrow_forward
- 4. Other things equal, what effect will each of the following changes independently have on the equilibrium level of real GDP in a private closed economy? LO11.5 a. A decline in the real interest rate. b. An overall decrease in the expected rate of return on investment. c. A sizable, sustained increase in stock prices.arrow_forwardGiven the following hypothetical data where C = $3,000; I = $1,200; G = $2,000; X – M=-$500; depreciation = $200; transfer payments = $800, net domestic product is %3D %3D %3D O a. $6,200 b. $5,500 O c. $5,700 d. $6,900 O e. $6,400arrow_forwardTable 7-3 (in $ billion) consumption $1,100.00 %3D inventory investment = $460.00 purchased of new capital goods = $560.00 government purchases = $300.00 %3D exports = $20.00 %3D imports $33.00 %D purchased of new residential housing = $58.00 %3D Refer to Table 7-3, GDP equals O $2,165.00 O $2,432.00 O $2,465.00 O $2,425.00arrow_forward
- The following national accounting data are available for an economy for 2020. $ Billion GDP 950 Household Consumption Government Consumption 650 150 Government Investment Direct and Indirect Taxes 170 Subsidies by government 20 Government Transfer Payments 30 Government Interest Payments 10 Retained Earnings Net Exports What is the level of national saving in this economy? Select one: а. 250 O b. 210 O c. 190 d. 200 e. 150arrow_forwardAccording to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? O. 1971 O. 1972 O. 1973 O. 1974 O. 1975arrow_forwardTable 2. The following table presents information about a closed economy whose market for loanable funds is in equilibrium. GDP Consumer Spending Taxes Minus Transfers Government Purchases $8.5 trillion $5.2 trillion $1.5 trillion $0.7 trillion Refer to Table 2. The quantity of private saving is O a. $2.6 trillion. O b. $1.8 trillion. Oc. $0.8 trillion. O d. $1.1 trillion.arrow_forward
- For a closed economy, GDP is $10, consumption is $8, taxes are $1, and the buget deficit is $1, What are private saving and national saving? a. $2 and $1 O b. $1 and $2 O c. $1 and $0 O d. $1 and $1arrow_forward5. LO 2,5 A consumer receives income y in the current period and income y' in the future period, and pays taxes of t and t' in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. This consumer faces a constraint on how much he or she can borrow, much like the credit limit typically placed on a credit card account. That is, the consumer cannot borrow more than x, where x < we-y+t, with we denoting lifetime wealth. Use diagrams to determine the effects on the consumer's current consumption, future consumption, and saving of a change in x, and explain your results.arrow_forward5. Suppose the value of corn a household produces is the equivalent of 60 percent of its income and the value of the corn it consumes is the equivalent of 30 percent of its consumption expenditure. Household also earns 30% of their income from selling their family labor and does not purchase any labor. If the price of corn decreases by 40 percent and wage rate increases by 20 percent, calculate: a. Net rice sales as fraction of total consumption expenditure? b. Percentage effect on real purchasing power?arrow_forward
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