Question
In: Economics
Suppose that firms decide to increase their investment in physical capital. Use the model of the...
Suppose that firms decide to increase their investment in physical capital. Use the model of the market for loanable funds in an open economy to answer the following questions. Be sure to use the appropriate graphs to illustrate the answer.
a) What happens to the quantities of national savings, private savings, and public savings?
b) What happens to the real interest rate, the quantity of investment, and the quantity of net capital outflows?
c) What happens to the real exchange rate and quantity of net exports?
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
Suppose that American firms become more optimistic and decide to increase investment expenditure today in new...
Suppose that American firms become more optimistic and decide to
increase investment expenditure today in new factories and office
space.
a. How will this increase in investment affect output, interest
rates, and the current account?
b. Now repeat part (a), assuming that domestic investment is
very responsive to the interest rate so the U.S. firms will cancel
most of their new investment plans if the interest rate rises. How
will this affect the answer you gave previously?
Suppose there is an exogenous increase in investment. Use the large open economy model to answer...
Suppose there is an exogenous increase in investment. Use the
large open economy model to answer the following:
1. Will the domestic real interest rate change? Explain.
2. Does this shock affect net capital outflows? Explain why or
why not.
3. What happens to the value of the domestic currency in the
foreign exchange market? Why does the value of the domestic
currency change?
4. Will net exports change? Why or why not?
5. Will domestic investment change? Why or...
Suppose that you countrymen decide to increase their saving. If the elasticity of net capital outflow...
Suppose that you countrymen decide to increase their saving.
If the elasticity of net capital outflow with respect to the
real interest rate is very high, will this increase in private
saving have a large or small effect in domestic investment?
A simple linear regression model relating a bank lending interest rate and investment in physical capital...
A simple linear regression model relating a bank lending
interest rate and investment in physical capital by companies is
stated as:
Which variable (lending interest rate
or investment in physical capital) do you think should be the
dependent variable in this regression model? Please justify your
answer.
[2 points]
What sign would you expect for the slope of this regression
model for interest rate and investment in physical capita? Please
justify your
answer.
What is the role of...
Suppose that American firms become more pessimistic and decide to reduce investment expenditure today in new...
Suppose that American firms become more pessimistic and decide
to reduce investment expenditure today in new factories and office
space. How will this decrease in investment affect output, interest
rates, and the current account? (explanation and graphs)
Suppose that American firms become more pessimistic and decide to reduce investment expenditure today in new...
Suppose that American firms become more pessimistic and decide
to reduce investment expenditure today in new factories and office
space.
How will this decrease in investment affect output, interest
rates, and the current account? Please include a graph thank
you
Explain the role of an increase in physical capital in economic growth
Explain the role of an increase in physical capital in economic
growth
Briefly describe the Capital Asset Pricing Model and its use in investment opportunities.
Briefly describe the Capital Asset Pricing Model and its use in
investment opportunities.
There is a surge of optimism, and firms start to increase their investment at an irrational...
There is a surge of optimism, and firms start to increase their
investment at an irrational rate.
Use a graph and determine the short-run effects on the price
level (P) and real output (Y).
We assume that the government will take no deliberate
action.
With time, what will happen to expected price level?
Based on (b), what will happen to the short-run aggregate
supply curve?
We now assume, instead, that the government decides to intervene
immediately instead of waiting for...
Suppose there is an exogenous increase in taxes,. Use the large open economy model to answer...
Suppose there is an exogenous increase in taxes,. Use the large
open economy model to answer the following:
1. Does this shock affect national saving? Explain.
2. Does this shock affect net capital outflows? Explain why or
why not.
3. What happens to the value of the domestic currency in the
foreign exchange market? Why does the value of the domestic
currency change?
4. Will net exports change? Why or why not?
5. Will the domestic real interest rate change?...
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