1. Consider the inter-temporal budget constraint for the government and consumers. Assume the interest rate is...

1. Consider the inter-temporal budget constraint for the government and consumers. Assume the interest rate
is r= 5%.
(a) Suppose the government cuts taxes today by $100 billion. Describe three possible ways the government can change spending and taxes to satisfy its budget constraint.
(b) Suppose consumers obey the permanent-income hypothesis. Would their consumption rise, fall, or stay the same for each of the alternatives considered in part (a)?
(c) What happens to private saving, total saving, and investment in the three scenarios? Why? (Assume foreign saving does not change.)

Expert Solution

Rahul Sunny answered 1 year ago

What is the effect of a government budget deficit on a) real interest rate and b)...

What is the effect of a government budget deficit on a) real interest rate and b) real exchange rate. Use the market for laonable funds and the market for foreign currency exchange in your answer. What are the negative effects of current US federal budget deficit? What are the positive effects? Argue.

A consumers budget constraint is given by 12F+3S=24 where F is food and S is shelter...

A consumers budget constraint is given by 12F+3S=24 where F is food and S is shelter (with S on the vertical axis). Answer the following questions: a. What is the value of the vertical axis intercept? b.What is the value of the horizontal axis intercept? c. What is the slope? d. In terms of economics, what is the slope showing you?

1. Assume the rate of interest on USD deposits is 5% and the rate of interest...

1. Assume the rate of interest on USD deposits is 5% and the rate of interest on French deposits is 3% which of the following is likely to occur? The USD will appreciate the Euro will appreciate the USD will depreciate There will be no change to the exchange rate 2. The equilibrium real exchange rate is the rate at which ? the cost of domestic goods is equal to the cost of foreign goods measured in the same currency...

Assume that there is a flat yield curve where the current interest rate on all government...

Assume that there is a flat yield curve where the current interest rate on all government bonds is 10% per annum. The government has just issued 1-year, 2-year, 5-year and 10-year bonds, all offering an interest rate of 10%, a face value of $100 and paying interest once per annum. Calculate the market price for each of these bonds, assuming that immediately following purchase of the bonds at $100 there is either a parallel upward movement in the yield curve...

Consider a closed economy with no government, a fixed price level, a fixed interest rate and...

Consider a closed economy with no government, a fixed price level, a fixed interest rate and the following characteristics: Autonomous part of consumption expenditure = $10B Investment = $30B Equilibrium GDP = $200B a. What is autonomous expenditure at equilibrium? (2) b. What is induced expenditure at equilibrium? (2) Now suppose that investment increases to $50B. c. What is the new level of Equilibrium GDP? (2) d. What is the value of the multiplier? (2) e. Briefly explain the process of convergence...

Assume that the 1-year spot rate on a government bill is 5.25%, and the spot rate...

Assume that the 1-year spot rate on a government bill is 5.25%, and the spot rate for a 2-year bill is 5.75%. What is the par rate of a two-year bill? Round your answer to the nearest one-tenth basis point.

Assume the following information: 1-year interest rate on U.S. dollars = 11.5% 1-year interest rate on...

Assume the following information: 1-year interest rate on U.S. dollars = 11.5% 1-year interest rate on Singapore dollars = 9.7% Spot rate of Singapore dollar = 0.48 USD/SGD 1-year forward premium on Singapore dollars = 3.64% Given this information, how much profit can be made with covered interest arbitrage, by borrowing 1 million USD?

Assume the following information: 1-year interest rate on U.S. dollars = 11.4% 1-year interest rate on...

Assume the following information: 1-year interest rate on U.S. dollars = 11.4% 1-year interest rate on Singapore dollars = 9.1% Spot rate of Singapore dollar = 0.4 USD/SGD 1-year forward premium on Singapore dollars = 3.79% Given this information, how much profit can be made with covered interest arbitrage, by borrowing 1 million USD?

Assume M=$100, PX=$5 and PY =$10. Graph the budget constraint. Label the intercepts with their appropriate...

Assume M=$100, PX=$5 and PY =$10. Graph the budget constraint. Label the intercepts with their appropriate numbers and the slope as well Now let’s assume income doubles so that M=$200. On the same space as above, graph the new budget constraint while appropriately labeling everything again. Need help with third part: Assume M=$100 again. But now, the price of good X increases from $5 to $10. Graph a 3rd budget constraint on the above graph and label everything.

Consider an economy with a corn producer, some consumers, and a government. In a given year,...

Consider an economy with a corn producer, some consumers, and a government. In a given year, the corn producer grows 30 million bushels of corn and the market price for corn is $5 per bushel. Of the 30 million bushels produced, 20 million are sold to consumers, 5 million are stored in inventory, and 5 million are sold to the government to feed the army. The corn producer pays $60 million in wages to consumers and $20 million in taxes...

Question