Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 26, Problem 5PA
To determine
The private saving, public saving , national saving, investment and equilibrium real interest rate.
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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, public saving, national saving, investment, and the equilibrium real interest rate.
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 26 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- Economists in Funlandia, which has a closed economy, have collected the following information about the economy for a particular year: Y = 11,500 C = 7,000 T = 1,300 G = 1,900 The economists also estimate that the investment function is: I 3,200 - 100r where r is the country's real interest rate, expressed as a percentage. Complete the following table by calculating private saving, public saving, national saving, investment, and the equilibrium real interest rate. Component Private Saving Public Saving National Saving Investment Equilibrium Real Interest Rate Amountarrow_forwardSuppose the following equations represents a closed economy: Y= C + I + G Y = 4000 G = 500 T = 500 C = 500 + 0.7 (Y – T) I = 1000 – 40r In this economy, compute the value of consumption (C), private saving, public saving, and national saving. Also, find the equilibrium interest rate (r). Now suppose that government spending (G) rises (expansionary fiscal policy) to 300. Compute private saving, public saving, and national saving. Also, find the new equilibrium interest rate (r). In part (b), due to expansionary fiscal policy (increase in government spending), which of the two other components of aggregate demand changes, C or I? Why? (Hint: Note the real interest rate)arrow_forwardEconomists in Pakland, a closed economy, have collected the following information about the economy for a particular year: Y = Rs.10,500 C = Rs.6,000 T = Rs.1,500 G = Rs.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 savingBlank 1(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)Public savingBlank 2(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)National savingBlank 3(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)InvestmentBlank 4The equilibrium real interest rateBlank 5(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)If the government increases taxes to Rs.1,800, calculate private savingBlank 6((Write Only numbers in the…arrow_forward
- Explain how the current level of investment depends on the following factors: 1) the current level of national income; 2) the current level of the interest rate; 3) the expected net profits in future time periods; 4) the expected interest rates in future time periods; 5) the current level of profit.arrow_forwardConsider an economy described by the following equations:Y=C + I +GY=7,000G=4000T=2,000C=150+0.75(Y-T)I=1,000-50rc. Now suppose the G rises by 1,000. Compute private saving, public saving, andnational saving and show a graphical representation of your answer.arrow_forwardAssume 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_forward
- Consider a closed economy with a gross domestic product (Y) of 800, consumption expenditure (C) of 500, government expenditure (G) of 100 and tax revenues (T) of 190. The figures are in billions of dollars. Suppose the investment expenditure function is I = 300 – 50r, where r is the real interest rate expressed as a percentage. a) State the equation between Y and the three components of expenditure. b) Calculate private saving (Sp), public saving (Sg), and national saving (S). c) Calculate investment (I). d) Calculate the equilibrium real interest rate and quantity of loanable funds. e) If the government ran a budget deficit of $30 billion in the next period, explain how this would affect the market for loanable funds.arrow_forwardThe 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_forwardconsumption and investment: C = 1,000 + (2/3)*(Y – T) and I = 1,200 – 100*r. Furthermore, Y = 8,000, G = 2500, T = 2,000. Calculate the national saving.arrow_forward
- A media company wants to know how much consumers spend in a closed economy. The answer is not readily available, but we know the following: Consumption: C = 50 + 0.6(Y - T) • Investment: 1 = 40-500 i • Taxes: T = 2C . Government spending: G = 20 where Y is GDP and i is the interest rate. At the time of the analysis, the central bank made sure that the interest rate. was 4% What is the level of consumption C? Select one: a 155 b. 170 c. 195 d. 220arrow_forwardConsider a closed economy that is characterized by the following equations: Y = C +1+ G (1) C = 500 + 0.75(Y-T) (2) | = 375-25r (3) T = 500 (4) G = 500 (5) m = m, (6) m. = 1000 (7) m, = 0.5Y (8) m, = -50r (9) Where Y is the GDP, C is private consumption expenditure, I is the Investment expenditure, G is government expenditure, T is tax revenues, M̟ is money supply, M, is transaction demand for money. M, is the speculative demand for money and r is the interest rate (in % points). a) Derive (m/P) the demand for real money balances equation (where P is the aggregate price level.) b) Derive the IS and LM equations of the economy (Express Y as a function of r and assume Pis fixed at 1.0.) c) Calculate the short-run equilibrium values of Y and r in the economy.arrow_forwardConsider an economy described by the following equations: Y = C+I+G Y = 5000 G = 1000 T = 1000 C = 250 + 0.75(Y-T) I = 1000 - 50r In this economy, compute private saving, public saving, and national saving. Find equilibrium interest rate. Now suppose that G rises to 1250. Compute private saving, public saving, and national saving. Find the new equilibrium interest rate. Using your knowledge of Macroeconomics and intuition explain the reason why increasing government expenditure causes interest rate to rise? If the government wants to increase the amount of savings in the economy, how should it alter government spending? What effect will this action have on the interest rate in the economy?arrow_forward
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