Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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Question
Chapter 4, Problem 1AP
a)
To determine
The graphical representation of the impact of increasing consumer’s saving on national saving, investment, and the real interest rate.
b)
To determine
The graphical representation of the impact of government announcement for one-time bonus payment to veterans returning from a war on the national saving, investment, and the real interest rate.
c)
To determine
The graphical representation of the impact of investment tax credit on national saving, investment, and the real interest rate.
d)
To determine
The graphical changes that represent the impact of finding of a large number of accessible oil deposits on national saving, investment, and the real interest rate.
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Suppose that the government creates a disincentive for private saving by increasing the tax that people pay on income from holding stocks and bonds. Construct a well-labeled diagram that depicts the effect of the policy change on the real interest rate and the equilibrium quantity of investment.
Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000; C = 6,000; T = 1,500; G = 1,700. The economists also estimate that the investment function is: I =3,300 –100r where r is the country’s real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate
Economists in Funlandia, a closed economy, have collected the following information about the economy
for a particular year:
Y = 10,000
C = 6,000
T = 1,500
G = 1,700
The economists also estimate that the investment function is:
I = 3,300 – 100 r,
where r is the country’s real interest rate, expressed as a percentage. Calculate private saving?
Chapter 4 Solutions
Macroeconomics (9th Edition)
Ch. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 8RQCh. 4 - Prob. 9RQCh. 4 - Prob. 10RQ
Ch. 4 - Prob. 1NPCh. 4 - Prob. 2NPCh. 4 - Prob. 3NPCh. 4 - Prob. 4NPCh. 4 - Prob. 5NPCh. 4 - Prob. 6NPCh. 4 - Prob. 7NPCh. 4 - Prob. 8NPCh. 4 - Prob. 9NPCh. 4 - Prob. 1APCh. 4 - Prob. 2APCh. 4 - Prob. 3APCh. 4 - Prob. 4APCh. 4 - Prob. 5APCh. 4 - Prob. 6APCh. 4 - Prob. 7APCh. 4 - Prob. 5WWMDCh. 4 - Prob. 6WWMD
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- Assume that in this economy consumption (C) is given by the equation C = 600 + 0.6(Y – T). Investment (I) is given by the equation I = 2,000 – 100r, where r is the real rate of interest in percent terms. Taxes (T) are 500 and government spending (G) is also 500. What are the values of private saving, public saving, and national saving?arrow_forwardClassify each of the following scenarios listed in the table below using the macroeconomic definitions of saving and investment. Saving Investment Manuel buys a government bond. Poornima borrows money to build an addition to a lab owned by her engineering firm. Valerie purchases shares of stock in Warm Breeze, a cloud computing company. Shen takes out a loan and uses it to build a new cabin in Idaho.arrow_forwardClassify each of the following based on the macroeconomic definitions of saving and investment. Saving Investment Crystal borrows money to build a new lab for her engineering firm. Hilary purchases stock in Pherk, a pharmaceutical company. Edison takes out a mortgage for a new home in Detroit. Brian purchases a corporate bond issued by a car company.arrow_forward
- The graph shows the output function, savings function, and depreciation function for an economy. Show what happens when the investment rate decreases by half by shifting the appropriate curve or curves in the graph.arrow_forwardExplain how changes in interest rates and rates of return on various investment options will affect the amount of money that businesses are willing to invest to increase output.arrow_forwardExplain 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?arrow_forward
- The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each individual scenario. (graph in image) Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is an increase in the tax rate on interest income, from 20% to 25%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to (a. fall, b. rise) and the level of investment spending to (a. increase, b. decrease). Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases…arrow_forwardGraphically illustrate (draw) and explain the effect of a sustained increase in savings on the growth of outputarrow_forwardConsider a closed economy. The introduction of new technology and an increase in the precautionary saving motives in the private sector will decrease real interest rates and the equilibrium quantity of saving supplied and demanded in this economy.Answer true, false, or uncertain. Please briefly explain your answer.arrow_forward
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