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3. Explain how a consumption tax could lead to a decrease in real interest rates.
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- 8. Given the following information: C = Ca + 0.8Yd Ip = 1900 - 40r G = 1800 NX = 700 - 0.14Y %D T= 200 + 0.20 Y Ca = 260 - 1Or Md/P = 0.25Y - 25r Ms/P = 2000 Find: 1. The equilibrium level of interest rate and output. 2. If Government expenditure increased by 100, find the new equilibrium level of interest rate and output8. Using an appropriate diagram, explain how the equilibrium interest rate is determined in the economy. If the central bank wants to reduce the equilibrium interest rate, what should they do? Illustrate this in the same diagram you have drawn earlier.Real Interest Rate 1₂ 1. 4 FIGURE 25-2 1 11 12 13 -10 Quantity of Investment and Saving (5) Refer to Figure 25-2. Suppose national saving is reflected by NS, and investment demand is reflected by Now suppose the government implements a policy that encourages investment. What is the effect in th market for financial capital? Select one: a. National saving shifts to NS₁, investment demand shifts to 1₁D, and the quantity of national saving rises t b. There is no effect on NS or ID and the quantity of national saving supplied remains at I". c. National saving shifts to NS₁, and the quantity of national saving supplied rises to 12. d. Investment demand shifts to 1₁D and the quantity of national saving supplied rises to 1₁. e. Investment demand shifts to 1₁D, national saving shifts to NS₁, and the quantity of national
- market in Draw the savings-investment equilibrium. Show how this market will to reports of a European recession that cause households to become pessimistic about the future (i.e. believe that their future income will decline)? What will happen to equilibrium quantity of saving and investment, and the equilibrium real interest rate?d. A reduction in the cost of acquiring new physical capital creates many new profitable opportunities for firms. The Loanable Funds Market Interest rate This will: Quantity of dollars Interest rate This will: I Oraise the equilibrium interest rate and decrease the quantity of funds saved and invested. raise the equilibrium interest rate and increase the quantity of funds saved and invested. lower the equilibrium interest rate and decrease the quantity of funds saved and invested. lower the equilibrium interest rate and increase the quantity of funds saved and invested. e. The government decides to increase government purchases (G), which increases the size of the budget deficit. 0 The Loanable Funds Market Quantity of dollars S I O S Ø Oraise the equilibrium interest rate and increase the quantity of funds saved and invested. O raise the equilibrium interest rate and decrease the quantity of funds saved and invested. Olower the equilibrium interest rate and decrease the quantity of…41. Suppose that government institutes an investment tax credit and such policy generates an increase in the government budget deficit. This would: a. shift the saving curve (i.e. supply of loanable funds) to the left. b. cause the real interest rate to fall.
- Identify the effect of recession in the economy on either demand or supply curve and the equilibrium interest rates. kindly use a graph in your explanation.2.3 An economy shows the following functions, C = 200+ 0.75(Y-T) T=80+ 0.2Y 1 = 200-2000i G = N$300 Mt = 0.5Y M₂ = 200-250i Mz Ms = N$400 Compute the equilibrium income and rate of interest?Table shows the amount of savings and borrowing in a market, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? Now, imagine the supply curve shifts so that there will be $50 million less supplied at every interest rate. Calculate the current and the new equilibrium interest rate and quantity, and explain the situation: the reasons of decrease of supply and what new equilibrium mean. Interest rate Qs Qd 5 200 470 6 270 320 7 320 320 8 350 300 9 400 200 10 500 100
- The enormous budget deficits of 2009 through 2011 meant that the federal government was borrowing upwards of $1.5 trillion per year. If that borrowing had limited the ability of the private sector to get financial capital for its purposes, economists would call this crowding out. There was O significant evidence this was a problem because interest rates were very high. O little evidence this was a problem because interest rates were very low. O significant evidence this was a problem because interest rates were very low. O little evidence this was a problem because interest rates were very high.44. Apply the classical theory. Consider a hypothetical economy described below: Y=C+I+G C = 50+CY - T I = 300 - 20r Y = 2,000 T = 900 G = 1,500 c = 0.6 where Y is output, C is consumption, I is investment, G is government purchases, T' is taxes, and r is real interest rate in percent. b) Find the equilibrium interest rate. (...) c) Suppose taxes are reduced by 80. First, calculate private saving, public saving, and national saving. Second, find the new equilibrium interest rate. Third, draw a graph that shows the change in the equilibrium. (5) d) Instead of reducing taxes by 80, suppose government purchases are increased by 80. First, calculate private saving, public saving, and national saving. Second, find the new equilibrium interest rate. Third, draw a graph that shows the change in the equilibrium. (. e) Why is the change in national saving larger in (d) than in (c) even if the magnitude of the change in fiscal policy in (c) and (d) are the same?
