EBK ECONOMICS
13th Edition
ISBN: 8220106798607
Author: Arnold
Publisher: CENGAGE L
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Chapter 9, Problem 4QP
To determine
Explain the relationship between interest rate and saving.
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A friend asks you to explain the difference between saving and investment. Explain the difference.
The importance of income in determining savings has persisted since the time of Keynes. Why have other theories failed to displace income as the most critical variable in saving theory?
This 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…
Chapter 9 Solutions
EBK ECONOMICS
Ch. 9.1 - Prob. 1STCh. 9.1 - Prob. 2STCh. 9.1 - Prob. 3STCh. 9.2 - Prob. 1STCh. 9.2 - Prob. 2STCh. 9.2 - Prob. 3STCh. 9.3 - Prob. 1STCh. 9.3 - Prob. 2STCh. 9.3 - Prob. 3STCh. 9 - Prob. 1QP
Ch. 9 - Prob. 2QPCh. 9 - Prob. 3QPCh. 9 - Prob. 4QPCh. 9 - Prob. 5QPCh. 9 - Prob. 6QPCh. 9 - Prob. 7QPCh. 9 - Prob. 8QPCh. 9 - Prob. 9QPCh. 9 - Prob. 10QPCh. 9 - Prob. 11QPCh. 9 - Prob. 12QPCh. 9 - Prob. 13QPCh. 9 - Prob. 14QPCh. 9 - Prob. 15QPCh. 9 - Prob. 16QPCh. 9 - Prob. 17QPCh. 9 - Prob. 18QPCh. 9 - Prob. 1WNGCh. 9 - Prob. 2WNGCh. 9 - Prob. 3WNGCh. 9 - Prob. 4WNGCh. 9 - Prob. 5WNGCh. 9 - Prob. 6WNGCh. 9 - Prob. 7WNG
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- 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_forwardBriefly discuss THREE economic policies that encourages household savings.arrow_forwardHow does a decrease in the tax rate on income earned on saving affect saving, investment, the interest rate, and economic growth?arrow_forward
- Classify 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_forwardSome studies have found that saving is not very sensitive to the rate of return on saving. a.true b.falsearrow_forwardPlease explain how a rise in the household saving rate can cause a fall in GDP?arrow_forward
- Classify 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_forwardExplain the difference between saving and investment as defined by a macroeconomistarrow_forwardIn 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 whenarrow_forward
- If consumers decide to increase saving, then C decreases, r decreases, I increases, and Y:arrow_forwardDraw a savings and investment graph. Explain the logic of why investment slopes down and savings slopes up.arrow_forwardMacmillan Learning U The graph depicts the market for loanable funds. Shift the appropriate curves to indicate what will happen to the market if there is an improvement in the technology firms use in production. As a result of this change, the real interest rate is now % Real interest rate 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 and the quantity of funds is $ billion. 0.5 Supply Demand 0.0 0 5 10 15 20 25 30 35 40 45 50 Loanable funds (in billions)arrow_forward
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