Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 23, Problem 4.4P
To determine
Wealth accumulation and the equilibrium level of GDP, consumption and saving.
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In the language of macroeconomics,
a person or firm purchases new capital.
occurs when a person's income exceeds his consumption, while
Which of the following situations represent saving? Check all that apply.
You use your $200 paycheck to buy stock in AT&T.
Your family takes out a mortgage and buys a new house.
You borrow $1,000 from a bank to buy a car to use in your pizza delivery business.
Your roommate earns $100 and deposits it in his account at a bank.
occurs when
Question 13
0/1.5 points
Consider the two-period model. Consumer's have preferences over current and future consumption (c and
c). Households only receive income in the second period, y! That is, income in the first period is equal to
zero, y=0. Households can save, s, for the second period and receive interest rate r. The slope of the budget
constraint is
-(1+r). As such, an increase in r would increase the slope in (c,c') space (the standard graph).
The government implements a proportional income tax, O
Problem Set 4: Saving and Investment
Economists in Fantasialand, a closed economy, have collected the following information about the economy for a particular year: Y = 9000; C = 6000; T = 1500; G = 1700. The economists also estimate that the investment function is: I = 3300 - 100r, where r is the country’s real interest rate, expressed as a percentage (i.e. r = 1 means interest rate is one percent). Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate.
Chapter 23 Solutions
Principles of Economics (12th Edition)
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- Use the graphs to illustrate the effect of a decrease in consumer income expectations on the consumption (C) function and the savings (S) function. Real consumption 500 450 400 350 300 250 200 150 100 50 0 0 50 C = DI с 100 150 200 250 300 350 400 450 500 Real disposable income (DI) Real savings 500 450 400 350 300 250 200 150 100 50 0 -50 -100 -150 0 50 100 150 200 250 300 350 Real disposable income (DI) S 400 450 500arrow_forwardIndicate whether each of the following descriptions represents saving or investment, as defined by a macroeconomist. Saving Investment Description This occurs when a person or firm purchases new capital. This occurs when a person's income exceeds his consumption. Which of the following situations represent investment? Check all that apply. You use your $200 paycheck to buy stock in AT&T. Your family takes out a mortgage and buys a new house. You borrow $1,000 from a bank to buy a car to use in your pizza delivery business. Your roommate earns $100 and deposits it in his account at a bank.arrow_forward7. Consider the model where an individual has wealth k which they can either save or consume. If they save it, they receive a fixed and exogenous return r. The instantaneous utility function is given by: u(c, k) = c + a(k) where c is consumption, k is wealth, and a(k) is a function that defines the utility that an individual gets from holding wealth. The growth in wealth is given as the returns on wealth rk, plus income from working z(t), minus consumption c(t). a. Write out the differential equation for wealth. b. For an infinite time model, set up the optimal control problem with discounting at a rate 8. c. Write the current-valued Hamiltonian of this problem. d. Derive the steady-state level of consumption.arrow_forward
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