Use the closed classical economy to analyze the effects of an increase in government purchases on real output, unemployment, consumption, national saving, investment, and the real interest rate.
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Use the closed classical economy to analyze the effects of an increase in government purchases on real output,
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- 1. Explain the effect of DEFLATION on the equilibrium interest rates using: а) Loanable Funds Theory. b) Keynes' Liquidity Preference Theory.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?Consider an economy described by the following equations: Y = C + I + G AND, Y = 20,000; G = 4,000; T = 4,000; C = 1000 + 0.80(Y − T); : I= 2,500 – 120r. national saving AND the equilibrium real interest rate equal: Select one: a. national saving 2200 AND the equilibrium real interest rate 2.5%. b. national saving 2500,AND the equilibrium real interest rate 2%. c. national saving 4000 AND the equilibrium real interest rate 1.5%. d. national saving 3200 AND the equilibrium real interest rate 2.5%.
- 3 Explain how any technological advancement (increase in our A from production function) could affect investment, aggregate demand and income. Please show your answer by using graphs, models and explaining thoroughly.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…PLEASE ANSWER ALL QUESTIONS NOT JUST SOME PLEASE WRITE THE EXACT NUMBERS FOR THE GRAPH. PLEASE READ CAREFULLY, THIS MAY BE A SIMILAR QUESTION, BUT ALL QUESTIONS ARE DIFFERENT
- 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.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.36. When a person receives extra income above their regular income, they have an option to save or spend that additional income. The portion of the extra income that is spent can be represented in a figure called: The Marginal Propensity to Consume Savings and Loan Theory The Marginal Propensity to Save The Piggy Bank Theory 37. Economics studies how people use scarce resources to make choices. Those choices can be influenced by: Consumers Incentives The government Taxes 38. What is a problem with nominal GDP when compared to real GDP? it represents past prices and is therefore unreliable it always grossly overstates the output of a nation It can represent deceptive outputs of a nation it has no problems or disadvantages 39. What is a fiscal cliff? A simultaneous increase in tax rates and cuts in government spending A simultaneous decrease in tax rates and cuts in government spending A simultaneous increase in…
- Problem 3 à 152 msllov For each of the following scenarios, use the supply and demand graph to demonstrate the resulting changes in the equilibrium real interest rate, national saving and investment. a. The government raises its tax on corporate profits. Other tax changes are also made, such that the government's deficit remains unchanged. Chil b. Concerns about job security raise precautionary saving. c. New environmental regulations increase firms' costs of operating capital. d. The government reduces its overall spending, lowering the government budget deficit. Imsidor928. An increase in national saving will cause real interest rate and investment spending to change in which of the following ways? A. B. C. D. E. Real Interest Rate Increase Increase Increase Decrease Decrease Nominal Interest Rate 7%³ z%¹ Sp3 Investment Increase Decrease Not change Increase Not change Sp T Q³ Q¹ D Quantity of Money2. In a two-period model, Jennifer expects to earn income of £15,000 in the second period but nothing in the current period; whereas Martin has income of £15,000 in the current period (everything adjusted for inflation). The real interest rate for both borrowing and lending is 30%. a) What is the present value of Jennifer’s future income? b) Show diagrammatically why Martin is better off than Jennifer. c) Show diagrammatically the impact of a fall in the interest rate for both Martin and Jennifer. Is it possible for a fall in interest rates to make Jennifer better off than Martin? d) Comment briefly on the implication of your answer to part (c) for the effectiveness of monetary policy carried out by changing the central bank interest rate.
