Calculation of national income from the given data

Assignment Help Macroeconomics

Reference no: EM1313893

1. You are given the following information for the equations for investment demand, private saving, and the government's deficit: Id =2400-125r, S= 1,750 + 75r, T-G = -350. Suppose that this is a closed economy. The equilibrium interest rate is the one at which national savings and investment demands are equal.

a. Derive the equation for national saving.

b. Compute the equilibrium interest rate. Compute the amount of investment demand, private saving, and national saving at the equilibrium interest rate.

c. Suppose that the government budget deficit is cut by $200 billion. Compute the new equilibrium interest rate. Compute the values of investment demand, private saving, and national saving at the new equilibrium interest rate.

d. Compare and contrast your answers to parts b and c.

2. Given the information at the beginning of question 1, assume we have a small open economy and that the foreign interest rate is 4.8 percent.

a. Compute the amounts of investment demand, private saving, national saving, net exports, and net foreign borrowing at the foreign interest rate.

b. Suppose that the government budget deficit is cut by $200 billion. Compute the new values of investment demand, private saving, national saving, and vet exports. Is the economy now borrowing from the rest of the world or lending to the rest of the world?

c. Suppose that instead of a small open economy, we have a large open economy, and that initially the domestic and foreign interest rates are both 4.8 percent. The government budget deficit is cut by $200 billion. As a result, the domestic and foreign interest rates both decline to 4.4 percent. Compute the new amounts of investment demand, private saving, national saving, net exports, and foreign borrowing (lending) at the new domestic and foreign interest rates.

d. Explain why your answers to parts b and c differ.

3. Suppose a country has net exports of 40, transfer payments of 20, net investment income of -15, and a balance of payments surplus of

4. Find this country's current account balance and capital account balance.

Reference no: EM1313893

Questions Cloud

Deposit creation process using deposit multiplier : What is the net effect on the money supply in the economy? Show your work. Assume instead that Sammy uses the $10,000 he receives to pay back a loan from Bad Boys Bank. $8,000 goes to repay the loan itself, and $2,000 represents his Interest payme..

Calculation of carrying value of the asset : The net carrying amount of these group assets accounts would be decreased and Calculation of carrying value of the asset

Products obtained by cutting alphas forests : Small country Alpha exports lumber products obtained by cutting Alpha's forests. Cutting the forests creates negative external effects in Alpha.

Evaluating result with confidence and margin of error : How large random sample of potential voters will be required to evaluate result with 95% confidence and with margin of error of plus and minus 3%?

Calculation of national income from the given data : Compute the equilibrium interest rate. Compute the amount of investment demand, private saving, and national saving at the equilibrium interest rate.

Independence of attributes : Is there any evidence that the different teatments produced different responses? If so, which one seems to work best?

Computation of npv of the project at various interest rates : Computation of NPV of the project at various interest rates and what is the NPV of this project if the five-year interest rate is

Firms inverse demand curve find the firms optimal quantity : Suppose a firm's inverse demand curve find the firm's optimal quantity, price also profit by using the profit also marginal profit equations.

Calculate the book value of machine : Calculation of book value of machine - what will be the machine's book value as of December31, 2008?

User Account

All Pages