3 1 The graph below illustrates the money demand and investment demand for the economies of Pabst and Kokanee. Pabst Kokanee a. If money supply is increased by 25, what will be the new interest rate? Round your answers to one decimal place. Pabst: % Kokanee: % b. What will be the increase in investment spending as a result of this new interest rate? Pabst: Kokanee: c. If the multiplier is 2 in each economy, what will be the increase in GDP? Pabst: Kokanee: d. In which economy would monetary policy be more effective in closing a recessionary gap? PabstKokanee 10 (110.1.5) 70 80 90 100 110 120 Quantity of money 70 80 90 100 110 120 130 Quantity of money MD MS 圈圈 MD MS Kokanee Interest rate 10 8 2 6 5 4 3 2 Interest rate 1 6 S 4 3 2 10 20 30 40 50 60 70 80 90 100 Quantity of investment 10 20 30 40 50 60 70 80 90 100 Quantity of investment E E

3 1 The graph below illustrates the money demand and investment demand for the economies of Pabst and Kokanee. Pabst Kokanee a. If money supply is increased by 25, what will be the new interest rate? Round your answers to one decimal place. Pabst: % Kokanee: % b. What will be the increase in investment spending as a result of this new interest rate? Pabst: Kokanee: c. If the multiplier is 2 in each economy, what will be the increase in GDP? Pabst: Kokanee: d. In which economy would monetary policy be more effective in closing a recessionary gap? PabstKokanee 10 (110.1.5) 70 80 90 100 110 120 Quantity of money 70 80 90 100 110 120 130 Quantity of money MD MS 圈圈 MD MS Kokanee Interest rate 10 8 2 6 5 4 3 2 Interest rate 1 6 S 4 3 2 10 20 30 40 50 60 70 80 90 100 Quantity of investment 10 20 30 40 50 60 70 80 90 100 Quantity of investment E E

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Supply, S Real Interest rate Demand Loanable funds (billions of dollars per year) Refer to the graph above. Which of the following situations would have caused the shift as shown in the graph? O Taxes are changed so that real interest income is taxed rather than nominal interest income An expected recession decreases the profitability of new investment O The government runs a budget deficit O Technological change increases the profitability of new investment
The table gives data about Northland's economy in 2017. What is the value of GDP in Northland in 2017? The value of GDP in Northland in 2017 is _______. A. $2,262 billion B. $1,291 billion C. $971 billion D. $1,439 billion Item Amount (billions) Consumption expenditure 720 Wages 652 Indirect taxes less subsidies 148 Investment 235 Net exports of goods and services 54 Profit 171 Government expenditure on goods and services 282
Consider the following data for a closed economy: Y = $12 trillion C = $9 trillion G = $2 trillion = $- 1.0 trillion Spublic T= $3 trillion Jse the data to calculate the following: (Enter your responses rounded to one decimal place.) a. Private saving is: $ trillion. b. Investment spending is: $ trillion. c. Transfer payments are: $ trillion. d. The government budget balance is: $ trillion and as a result the government budget is in
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Suppose that every additional 3 percentage points in the investment rate boosts GDP growth by 1 percentage point. Assume also that all investment must be financed with consumer saving. Note: Investment rate = Investment/GDP The economy is currently characterized by $12 trillion $2 trillion Consumption: Saving (= Investment): GDP: $14 trillion If the goal is to raise the growth rate by 2 percentage points, a. by how much must investment increase? billion b. by how much must consumption decline? : billion
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Suppose the government borrows $50 billion more next year than this year. a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? b. What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $50 billion of extra government borrowing, C, see the attached picture.
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