Economics: Principles and Policy (MindTap Course List)
13th Edition
ISBN: 9781305280595
Author: William J. Baumol, Alan S. Blinder
Publisher: Cengage Learning
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Chapter 26.A, Problem 3TY
To determine
The equilibrium level of saving.
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If consumers decide to increase saving, then C decreases, r decreases, I increases, and Y:
Classify each of the following based on the macroeconomic definitions of saving and investment.
Saving
Investment
Crystal borrows money to build a new lab for her engineering firm.
Hilary purchases stock in Pherk, a pharmaceutical company.
Edison takes out a mortgage for a new home in Detroit.
Brian purchases a corporate bond issued by a car company.
Agreement and disagreement among economists
Suppose that Musashi, an economist from a business administration program in Georgia, and Rina, another economist from a nonprofit institution in the Midwest, are both guests on a popular science podcast. The host of the podcast is facilitating their debate over saving incentives. The following dialogue represents a portion of the transcript of their discussion:
Rina: I think it's safe to say that, in general, the savings rate of households in today's economy is much lower than it really needs to be to sustain an improvement in living standards.
Musashi: I think a switch from the income tax to a consumption tax would bring growth in living standards.
Rina: You really think households would change their saving behavior enough in response to this to make a difference? Because I don't.
The disagreement between these economists is most likely due to DIFFERENCES BETWEEN PERCEPTION VERSUS REALITY or DIFFERENCES IN SCIENTIFIC JUDGEMENTS…
Chapter 26 Solutions
Economics: Principles and Policy (MindTap Course List)
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Similar questions
- Explain why the saving curve slopes upward and the investment curve slopes downward in the saving–investment diagram. Give two examples of changes that would shift the saving curve to the right, and two examples of changes that would shift the investment curve to the right. (Note: insert hand drawn picture(s) into the word file to explain your answer.)arrow_forwardAgain, the following graph depicts the market for loanable funds. An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve(s) on the following graph to show the impact of this policy. INTEREST RATE (Percent) pemand Supply QTY OF LOANABLE FUNDS (Billions of dollars) The repeal of the previously existing tax credit causes the interest rate to and the level of investment toarrow_forwardsuppose that Sean, an economist from a university in Arizona, and Yvette, an economist from a university in Massachusetts, are arguing over saving incentives. The following dialogue shows an excerpt from their debate: Yvette: I think it's safe to say that, in general, the savings rate of households in today's economy is much lower than it really needs to be to sustain an improvement in living standards. Sean: I think a switch from the income tax to a consumption tax would bring growth in living standards. Yvette: You really think households would change their saving behavior enough in response to this to make a difference? Because I don't. The disagreement between these economists is most likely due to differences in scientific judments/differences between perception versus reality/ or differences in values . #2 Despite their differences, with which proposition are two economists chosen at random most likely to agree? Tariffs and import quotas generally reduce…arrow_forward
- With the help of consumption function C=10+0.5Y, calculate savings at an income level of $500arrow_forwardWhat is the difference between consumption and autonomous consumption?arrow_forwardThis question addresses the impact of saving on an economy by examining what happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shows the market for loanable funds. Show the impact of a change in the tax law that successfully encourages saving by shifting either the demand curve (D), the supply curve (S), or both. A tax law change that successfully encourages saving will (increase/decrease) interest rates, which leads to (less/more) investment and economic growth. To better understand how changes in tax laws can affect saving, suppose that Madison, a rising third-year in college, plans to save $550 from her summer job in order to buy textbooks for the upcoming fall semester. Madison's parents are so impressed with her plans that they offer to pay her an additional 30% interest per month on the money she saves, which means that Madison is now earning a large rate of return on her saving. By the end of the…arrow_forward
- Classify each of the following based on the macroeconomic definitions of saving and investment. Saving Investment Neha borrows money to build a new lab for her engineering firm. Teresa purchases stock in Pherk, a pharmaceutical company. Sam purchases a new condominium in San Francisco. Lorenzo purchases a certificate of deposit at his bank.arrow_forwardClassify each of the following scenarios listed in the table below using the macroeconomic definitions of saving and investment. Saving Investment Manuel buys a government bond. Poornima borrows money to build an addition to a lab owned by her engineering firm. Valerie purchases shares of stock in Warm Breeze, a cloud computing company. Shen takes out a loan and uses it to build a new cabin in Idaho.arrow_forwardConsider the market for loanable fund. Suppose that government started to give tax incentives for investment (so the cost of investment fell.) Answer which curve (Demand or Supply) would shift to which direction (Left or Right), and answer how the equilibrium saving would change (Decrease or Increase)Curve: Direction: Saving:arrow_forward
- Consumption function C = 32 +0.8 Y. a. Create saving function b. How much is consumption when saving = 0 c. How much income when the savings are 20arrow_forwardClassify each of the following scenarios listed in the table below using the macroeconomic definitions of saving and investment. Shen purchases a new townhouse in Hartford. Poornima borrows money to build an addition to a lab owned by her engineering firm. Manuel purchases a certificate of deposit at his bank. Valerie purchases stock in Tesqar, a biotech firm. Saving Investment Oarrow_forwardAssume that the unintended investment is negative. Briefly outline how the level of Ye will change in response to this. how is the impact of change related to the size of the multiplier?arrow_forward
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