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Economics
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21 Dec 2018

The government's equations for demand, private saving, and the government's deficit are listed here: Id =1200-62.5r, S= 1875 + 37.5r, T-G = -175.

Based on the scenario above answer the following:

What is the equation for national saving?

Compute the new equilibrium interest rate.

Compute the values of national saving at the new equilibrium interest rate.

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22 Dec 2018
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Related questions

Assume the following values of an economy.

Planned Investment (Ip) = $20

Autonomous Consumption (C ) = $30

Marginal Propensity to consume (MPC) = .9

a. What is the equilibrium income?

b. What is the value of saving at equilibrium?

c. Does the saving and Investment Identity hold true at equilibrium income OR GDP?

2. In addition to the values given in question (1) above, assume the government increases its spending by $30 without raising taxes. The government can do this by borrowing from the private sector.

a. Based on this information calculate the new level of equilibrium income.

b. Calculate the total value of consumption at equilibrium.

c. Calculate the total value of saving at equilibrium.

3. In addition to questions in (1 & 2) above, assume the government decides to raise autonomous taxes by $30 to balance its budget.

a. What is the new value of equilibrium income?

b. What is the value of the autonomous tax multiplier?

c. What is the value of autonomous spending multiplier?

4. In addition to the value in questions (1, 2 & 3), assume the following values.

Autonomous export (Xa) = $30

Autonomous import (Ma) = $10

Marginal propensity to import = 0.1

a. What is the new value of equilibrium income?

b. What is the value of total consumption of domestically produced good at equilibrium?

c. What is the value of the trade surplus or deficit at equilibrium?

d. What is the value of the marginal propensity to consume domestically produced goods?

e. What is the value of capital inflow or outflow

Assume the following values of an economy.

Planned Investment (Ip) = $20

Autonomous Consumption (C ) = $30

Marginal Propensity to consume (MPC) = .9

What is the equilibrium income?

Y* = aggregate demand at the equilibrium level. (Consumption + investment)

Consumption function = autonomous consumption + mpc * Y.

C=30 + .9Y

AD = 30 + .9Y + 20 = 50 + .9Y

Y= 50 + .9Y.1Y = 50

Y = $500 is the equilibrium level of income.

What is the value of saving at equilibrium?

Savings = income - consumption at the equilibrium level of Y=500,

Consumption = 30 +.9 * 500 = $480

Savings = 500 - 480= 20

c. Does the saving and Investment Identity hold true at equilibrium income OR GDP?

Since planned investment = $20 which is equal to savings calculated, the saving investment identity holds true at equilibrium income.

2. In addition to the values given in question (1) above, assume the government increases its spending by $30 without raising taxes. The government can do this by borrowing from the private sector.

a. Based on this information calculate the new level of equilibrium income.

If Government expenditures = $30, Y = C + I + G

Y = 1/1-.09 * (30+20+30) Y = 800

b. Calculate the total value of consumption at equilibrium.

C = 30 + .9(800) = 750

c. Calculate the total value of saving at equilibrium.

Savings = I - C = 800 - 750 = 50

3. In addition to questions in (1 & 2) above, assume the government decides to raise autonomous taxes by $30 to balance its budget.

What is the new value of equilibrium income?

Y = 1/1-.9 (30-.9(30) +20+30) = 530

What is the value of the autonomous tax multiplier?

-.09/.01 = -9

c. What is the value of autonomous spending multiplier?

1/.1 = 10

Assume the following model of the economy, with the price level fixed at 1.0:

C = 0.8(Y-T), Ms = 1200, Md/P = 0.4Y-40r,

I = 800-20r, T = 1000, G = 1000,

where Ms and Md are the nominal supply of money and nominal demand for money.

(a) Write a formula for the IS curve, showing Y as a function of r alone.

(b) Write a formula for the LM curve, showing Y as a function of r alone.

(c) What are the short-run equilibrium values Y, r, Yd, C, I, S, Sp, and Sg, and national saving?

(d) Assume G increases by 200. By how much will Y increase in short-run equilibrium? What is the government purchases multiplier?

(e) Assume that G is back at its original level, but Ms increases by 200. By how much will Y increase in short-run equilibrium? What is the multiplier for the money supply?

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