savings and investments – Flashcards
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The identity that shows that GDP is both total income and total expenditure is represented by
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Y = C + I + G + NX.
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represents the GDP in a closed economy?
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Y = C + I + G
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In a closed economy, national saving equals
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investment.
income minus the sum of consumption and government expenditures.
private saving plus public saving.
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In a closed economy, what does (T - G) represent?
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public saving
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In a closed economy, what does (Y - T - C) represent?
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private saving
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Suppose that in a closed economy GDP is equal to 8,000, Taxes are equal to 2,000, Consumption equals 5,000, and Government expenditures equal 1,000. What is national saving
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2000
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If the tax revenue of the federal government exceeds spending, then the government
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runs a budget surplus.
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The source of the supply of loanable funds
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is saving and the source of demand for loanable funds is
investment.
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The slope of the demand for loanable funds curve represents the
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negative relation between the real interest rate and investment.
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The slope of the supply of loanable funds curve represents the
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positive relation between the real interest rate and saving.
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A higher interest rate induces people to
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save more, so the supply of loanable funds slopes upward
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Your eccentric Uncle has promised to give you $50,000 when you graduate. You think that you will graduate in three years and could get about 7 percent on any money you saved. What is the present value of the $50,000?
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$50,000/(1.07)3
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Your company has a project that will provide $1,000 of revenue today and $2,000 of revenue one year from today. The relevant rate of interest is r. The present value of this project is
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$1,000 + $2,000/(1 + r).
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What would happen in the market for loanable funds if the government were to increase the tax on interest income?
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the supply of loanable funds would shift left
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What would happen in the market for loanable funds if the government were to decrease the tax on interest income?
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There would be an increase in the amount of loanable funds borrowed.
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Suppose the government institutes an investment tax credit. What would happen in the market for loanable funds?
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The interest rate and the quantity of saving would rise.
The interest rate and investment would rise.
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An increase in the budget deficit
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shifts the supply of loanable funds left.
reduces public saving and so shifts the supply of loanable funds
left.
drives the price of loanable funds higher.
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If a government went from a deficit to a surplus, government
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debt would fall, the supply of loanable funds would shift right,
and interest rates would fall.
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The fall in investment due to government borrowing is called
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crowding out
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When the government runs a budget deficit,
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interest rates are higher than otherwise.
national saving is lower than otherwise.
investment is lower than otherwise.
