The government expenditure in a closed economy increases by $1 billion. Use a diagram to explain...

The government expenditure in a closed economy increases by $1 billion. Use a diagram to explain the effect on: rate of interest; investment; private saving; national saving.

Expert Solution

Rahul Sunny answered 1 year ago

Suppose that investment demand increases by $700 billion in a closed and private economy (no government...

Suppose that investment demand increases by $700 billion in a closed and private economy (no government or foreign trade). Assume further that households have a marginal propensity to consume of 90 percent. (a) Compute four rounds of multiplier effects. Instructions: Enter your responses rounded to the nearest one decimal place. Changes in This Cycle's Spending (in billions) Cumulative Change in Spending (in billions) First cycle 700.0 700.0 Second cycle Third cycle Fourth cycle (b) What will be the final cumulative...

In a closed economy taxes are $750 billion, government expenditures are $900 billion, and investment is...

In a closed economy taxes are $750 billion, government expenditures are $900 billion, and investment is $400 billion. What are private saving, public saving and national saving?

In a closed economy with no government, the equilibrium level of income is £22 billion, the...

In a closed economy with no government, the equilibrium level of income is £22 billion, the full employment level of income is £25 billion. To reach full employment would require an injection of £1 billion. Explain how could the economy reach full employment equilibrium level of income £25 billion?

If the expenditure multiplier is 2.5 and the government spending increases by $4 billion, what would...

If the expenditure multiplier is 2.5 and the government spending increases by $4 billion, what would be the increase in the real GDP? Select one: a. $8 billion b. $6.5 billion c. $1.6 billion d. $10 billion Say’s Law states that supply creates its own demand. In the neoclassical zone on the graph above, supply is at its potential GDP, at full capacity. When aggregate supplies have reached their full potential output, what happens if demand shifts to the right?...

Scenario: In a closed economy without a government, the consumption expenditure equals $5,000 and the investment...

Scenario: In a closed economy without a government, the consumption expenditure equals $5,000 and the investment expenditure equals $2,000. Refer to the scenario above. If the population of the economy is 200, the per capita national income is ________. Group of answer choices $35 $17 $50 $10 A hypothesis states that religious teachings, family ties, and/or social norms are the causes of economic prosperity. According to this hypothesis, ________. geography is a fundamental cause of prosperity culture is a proximate...

Suppose in a closed economy, the government lowers taxes by 100 billion. If the marginal propensity...

Suppose in a closed economy, the government lowers taxes by 100 billion. If the marginal propensity to consume is 0.8 and the government purchases remain unchanged, what happens to the following? That is, do they rise or fall? By how much? a. Public saving. b. Disposable income. c. Household consumption. d. Private saving. e. National saving. f. Investment.

Consider a closed economy where aggregate expenditure is AE = C + I + G. Government...

Consider a closed economy where aggregate expenditure is AE = C + I + G. Government purchases (G) is a constant, which do not vary with output level (Y). Consumption (C) is an increasing function of disposable income YD: C = a + bYD. In this economy, we have lump sum tax only; YD = Y –T. Investment is an increasing function of Y: I = k + iY. 1. The equilibrium condition is Y = AE. Solve for the...

a. use a loanable fund diagram to analyse the impact of the decrease in government expenditure...

a. use a loanable fund diagram to analyse the impact of the decrease in government expenditure on the interest rate investment and national saving b. the bank syste, has 50 million in deposit and 10 million in reserve and there are no excess reserves. the public hold 5 million in cash. assume that the centrl bank sells 5 million government bonds in open market peration. calculate the change in money supply resulted from above policy and show its effects on...

Suppose that investment is $160 billion, saving is $140 billion, government expenditure on goods and services...

Suppose that investment is $160 billion, saving is $140 billion, government expenditure on goods and services is $150 billion, exports are $200 billion, and imports are $250 billion. Is the government's budget exerting a positive or negative impact on investment? The government budget balance is a deficit or surplus, which is exerting a positive or negative impact on investment. It decreases or increases the demand for loanable funds, which _______ the real interest rate and ________ investment. A. lowers;...

suppose private saving in a closed economy is $12 billion and investment is $10 billion. Which...

suppose private saving in a closed economy is $12 billion and investment is $10 billion. Which of the following are true? A. national saving must equal $12 billion B. public saving must equal $2 billion C. Government budget surplus must equal $2 billion D. Government budget deficit must equal $ 2 billion

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