Which of the following are part of Keynes' critique of the loanable funds model? Choose all that apply. Saving is a passive residual of income, not a function of interest rates Savings drives investment, not the other way around Investment is a function of income, not of interest rates Investment decision are made facing a fundamental uncertainty about the future Saving does not equal investment at the macroeconomic equilibrium Investment is determined by expectations of the future and expected profitability, not the pool of savings available to be lent or interest rates
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- Suppose that the classical model of loanable funds displays the following characteristics. GDP (Y) is 5,000 while consumption (C) is given by the equation C = 1,200 + 0.3(Y – T) – 50r, where r is the real interest rate, in percent. Investment (I) is given by the equation I = 1,500 – 50r. Taxes (T) are 1,000, and government spending (G) is 1,500. Complete the following tasks. a. What are the equilibrium values of C, I, and r? What are the values of private saving, public saving, and national saving? Sketch the equilibrium in the long-run loanable funds model. b. Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 – 50r. Clearly explain how the economy moves to the new equilibrium and compute the new equilibrium values of C, I, and r. What are the new values of private saving, public saving, and national saving? Use the graph you sketched in a) to illustrate and explain the change in the economy. c.…Suppose that the classical model of loanable funds displays the following characteristics. GDP (Y) is 5,000 while consumption (C) is given by the equation C = 1,200 + 0.3(Y – T) – 50r, where r is the real interest rate, in percent. Investment (I) is given by the equation I = 1,500 – 50r. Taxes (T) are 1,000, and government spending (G) is 1,500. What are the equilibrium values of C, I, and r? What are the values of private saving, public saving, and national saving? Sketch the equilibrium in the long-run loanable funds model.Suppose that the classical model of loanable funds displays the following characteristics. GDP (Y) is 5,000 while consumption (C) is given by the equation C = 1,200 + 0.3(Y – T) – 50r, where r is the real interest rate, in percent. Investment (I) is given by the equation I = 1,500 – 50r. Taxes (T) are 1,000, and government spending (G) is 1,500. a. What are the equilibrium values of C, I, and r? What are the values of private saving, public saving, and national saving? Sketch the equilibrium in the long-run loanable funds model. (Answered in previous question on my page) b. Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 – 50r. Clearly explain how the economy moves to the new equilibrium and compute the new equilibrium values of C, I, and r. What are the new values of private saving, public saving, and national saving? Use the graph you sketched in a) to illustrate and explain the change in the…
- How will planned investment spending change as the following events occur? a) The interest rate falls as a result of Federal Reserve policy. b) The U.S. Environmental Protection Agency decrees that corporation must upgrade or replace their machinery in order to reduce their emissions of sulfur dioxide. c) Baby boomers begin to retire in large number and reduce their savings, resulting in higher interest rates. Thank you very much for your help.Explain how the Keynesian view differs from the classical view with respect to saving. Explain further how the two views differ with respect to investment.Assume a model economy with the following parameters: C= 100+0.25Yd I=100+0.5Y-3000i G=125 T=100 (M/P)d= 6Y-24000i (M/P)s=4500 Solve for the equilibrium real output and equilibrium interest rate.
- A rise in the interest rate would cause a (Click to select) v on the Demand of Loanable Funds (Investment function).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.Assume a model economy with the following parameters: C=300+0.25 Yd I=250+0.5Y-2500i G=350 T=300 (M/P)d= 4Y-16,000i (M/P)s= 880 Derive the IS and LM relations and solve for equilibrium real output and equilibrium interest rate.
- In the discussion of the life-cycle hypothesis, income is assumed to be constant during the period before retirement. For most people, however, income grows over their lifetimes. How does this growth in income influence the lifetime pattern of consumption and wealth accumulation shown in Figure 17-12 under the following conditions? Consumers can borrow, so their wealth can be negative. Consumers face borrowing constraints that prevent their wealth from falling below zero. Do you consider case (a) or case (b) to be more realistic? Why?This problem asks you to analyze the IS-LM model algebraically. Suppose consumption is a linear function of disposable income: C(YT) = a + b(YT) where a > 0 and 0 0 and d > 0. (a) Solve for Y as a function of r, the exogenous variables G and T, and the model's parameters a, b, c, and d. (b) How does the slope of the IS curve depend on the parameter d, the interest rate sensitivity of investment? Refer to your answer to part (a), and explain the intu- ition. (c) Which will cause a bigger horizontal shift in the IS curve, a $100 tax cut or a $100 increase in government spending? Refer to your answer to part (a), and explain the intuition.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