Assume there are no investment projects in the economy that yield an expected rate of return of 25 percent or more. But suppose there are $10 billion of investment projects yielding expected returns of at least 20 percent; another $10 billion yielding at least 15 percent; another $10 billion yielding at least 10 percent; and so forth. What will be the equilibrium level of aggregate investment if the real interest rate is 10%? Your Answer:
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- Assume there are no investment projects in the economy that yield an expected rate of return of 25 percent or more. But suppose there are $10 billion of investment projects yielding expected returns of between 20 and 25 percent; another $10 billion yielding between 15 and 20 percent; another $10 billion between 10 and 15 percent; and so forth. Cumulate these data and present them graphically, putting the expected rate of return on the vertical axis and the amount of investment on the horizontal axis. What will be the equilibrium level of aggregate investment if the real interest rate is (a) 15 percent, (b) 10 percent, and (c) 5 percent? Explain why this curve is the investment demand curve.Suppose that the real interest rate is 6%. Next, assume that some factors changes, such that the expected rate of return, declines by  two percentage points at each prospective level of investment. Assuming no change in the real interest rate, by how much and in what direction will the investment change?  which of the following might cause this change: (a) a decision to increase inventories; (b) an increase in excess production capacity.2. Suppose Economist in England, a closed economy, have collected the following information about the economy for a particular year: GDP equals 10.000 Consumption equals 6.000 Tax revenue equals 1.500 Government purchases equals 1.700 The economist also estimate that the investment function is I = 3.300 – 100r Where r is the country's real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrum interest rate.
- The figure below shows the investment demand curve for a fictitious country. Use the information in the figure to answer the question below. Expected rate of return and real interest rate (%) 16 DRHRENDSCSA32IO 15 14 13 12 11 10 9 8 5 Investment Demand 10 20 In stment demand curve 30 40 Investment (billions of dollars) 50So far we have assumed that consumption is determined by disposable income (C = C(Y-T), with the function increasing) and investment is determined by the real interest rate (I = I(r), with the function decreasing). But the real interest rate may affect households' choice between consumption and saving, and firms' sales or cash flow may influence their investment. This problem therefore asks you to consider the implications of some alternative assumptions. a. Suppose C = C(Y-T,r), with C a decreasing function of r. With this change in the model, does an increase in G increase C, decrease it, or leave it unchanged, or is it not possible to tell? b. Suppose II(Y-T,r), with I an increasing function of Y-T (and suppose that C is given by C(YT)). Does an increase in G increase I, decrease it, leave it unchanged, or is it not possible to tell? C. Suppose there are two types of investment. One (for example, the investment of large, mature firm) is determined by the real interest rate, and the…So far we have assumed that consumption is determined by disposable income (C=C(Y-T), with the function increasing) and investment is determined by the real interest rate (I = I(r), with the function decreasing). But the real interest rate may affect households' choice between consumption and saving, and firms' sales or cash flow may influence their investment. This problem therefore asks you to consider the implications of some alternative assumptions. a. Suppose C=C(Y-T,r), with C a decreasing function of r. With this change in the model, does an increase in G increase C, decrease it, or leave it unchanged, or is it not possible to tell? b. Suppose II(Y-T,r), with I an increasing function of Y-T (and suppose that C is given by C(Y T)). Does an increase in G increase I, decrease it, leave it unchanged, or is it not possible to tell? C. Suppose there are two types of investment. One (for example, the investment of large, mature firm) is determined by the real interest rate, and the…
- An economy has full-employment output of 9000, and government purchases are 2000. Desired consumption and desired investment are as follows: Real Interest Desired Desired Rate (%) Consumption Investment 2 6100 1300 6000 1200 4 5900 1100 5 5800 1000 6 5700 900 If the goods market is in equilibrium, what are the values of the real interest rate, desired national saving, and desired investment? r = %. (Enter your answer as a whole number.) (Enter your answer as a whole number.) %3DRefer to the table. Planned Planned Consumption Saving Planned Real GDP Investment $6,000 $1,000 $1,000 $5,000 10,000 0 10,000 14,000 1,000 15,000 18,000 2,000 20,000 22,000 25,000 26,000 30,000 If real Gross Domestic Product (GDP) equals $25,000, what is the average propensity to save? OA. 0.0 OB. 0.88 OC. 0.12 OD. 0.56Assume that GDP ( y) is 6.000. Consumption (C) is given by the equation C= 600 + 06(Y-T). Investment (I )is given by the equation I=2,000- 100r, where r is the real rate of interest in percent. Taxes (T) are government spending (G) is also 500 a. What are the equilibrium values of C, I, and r? b) What are the values of private saving, public saving, and national saving? ·
- Economics Assume in a simple economy that the level of saving is -$800 when aggregate output equals zero and that the marginal propensity to save is 0.25. 4.400 Derive the saving function and the oonsumption function. 3800 45 ne 3.200 OA S-800 +0.25Y and C-800 •0.75Y OB S- B00 -0.26Y and C B00 +0.75Y OC. B-800 -0.25Y and C-800 -0.75Y OD. S-800-0.025Y and C800 -0.075Y U 2.000 1400 Draw a graph showing these functions. 00 1.) Using the ine drawing toot, draw the consumption tunction. Label your line C. 200 2.) Using the ine drawing tool, draw the saving function. Label your ine S. ebo o 1do0 2400 000 do 400- Note: Carefully folow the instructions above and only draw the required abjects. Aggregate income. Y The consumption curve crosses the 45-degree line at a level of output of S (Enter your response as an integer)5) Mrs. Gizem has a salary of 10000 TL per month. Assuming that her autonomous (zero-income level) consumption is 600 TL and her MPC is 0.72, find how much she spends in one month and how much she saves? b) If Mrs. Gizem receives a salary rise of 2000 which increases her monthly salary to 12 000 per month; how much increase we may expect in her consumption and her saving?Economics Assume you are 20 year old, with zero initial wealth, planning to work until the age of 50 and expecting to live to age of 75. You are expected to earn a constant annual salary of €70,000. Task: estimate lifetime consumption Now, suppose your €10,000 transitory increase to your income in your first year of work, what happens to your lifetime income?. What is the magnitude of the transitory MPC, which completely smooths income?