Economists often argue that a large increase in government purchases – such as for the military – will crowd out private-sector spending. Use the investment-saving diagram to defend or to refute their premise
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Economists often argue that a large increase in government purchases – such as for the military – will crowd out private-sector spending. Use the investment-saving diagram to defend or to refute their premise.
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- Agreement and disagreement among economists Suppose that Musashi, an economist from a business administration program in Georgia, and Rina, another economist from a nonprofit institution in the Midwest, are both guests on a popular science podcast. The host of the podcast is facilitating their debate over saving incentives. The following dialogue represents a portion of the transcript of their discussion: Rina: I think it's safe to say that, in general, the savings rate of households in today's economy is much lower than it really needs to be to sustain an improvement in living standards. Musashi: I think a switch from the income tax to a consumption tax would bring growth in living standards. Rina: You really think households would change their saving behavior enough in response to this to make a difference? Because I don't. The disagreement between these economists is most likely due to DIFFERENCES BETWEEN PERCEPTION VERSUS REALITY or DIFFERENCES IN SCIENTIFIC JUDGEMENTS…In the Savings-Investment model, what is the effect of an increase in government spending on investment? Why?Give written answer with explanation and conclusion A government policy that would reduce the saving rate is ? a) giving tax breaks to increase the real return that savers receive b) eliminating the social security system c) increasing the government budget surplus by cutting government spending d) switching the tax system to tax consumption instead of income
- Explain how changes in interest rates and rates of return on various investment options will affect the amount of money that businesses are willing to invest to increase output.If private investment increases by $1, real GDP increases by $4. What do we call this in economics? Can you explain why this might happen?Show on a graph of the market for saving and investment the effect of the following. (The graph is a basic savings and investment graph). In an effort to improve fiscal conditions, policymakers raise taxes. This results in lower disposable income. Real interest rate (percent per year) 10. 8 6 4 2 SLF 0 1.2 1.4 1.6 DLF 2.0 2.2 1.8 Loanable funds (trillions of 2009 dollars) The savings function [Select] The investment function [Select] The real interest rate [Select] The level of savings and investment [Select]
- Suppose the economy goes into a recession and private households wish to save more while businesses wish to invest less. Suppose that at the same time Congress wishes to 'get its fiscal house in order' and balance the federal budget. (Assume there is no foreign trade.) According to the lectures, which of the following is not possible. Households (in the aggregate) successfully save more than intended investment while the federal government successfully balances the budget. Increased leakages through savings and taxes, compounded by decreased government and investment spending, create a 'paradox of thrift' situation The government successfully balances the budget O Congress is surprised that higher taxes and lower outlays actually increased the federal deficit The private sector runs a 'surplus', saving more than it investsexplain both in words and diagrammatically how the following government policy affect the economy’s saving and investment. Policy 1: Suppose the government passed a tax reform giving an investment tax credit to any firm building a new factory or buying a new piece of equipment.Illustrate how the demand and supply for new homes has changed in 2023.
- Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. This change in spending causes the government to run a budget which national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to the level of investment spending.Problem Set 4: Saving and Investment Economists in Fantasialand, a closed economy, have collected the following information about the economy for a particular year: Y = 9000; C = 6000; T = 1500; G = 1700. The economists also estimate that the investment function is: I = 3300 - 100r, where r is the country’s real interest rate, expressed as a percentage (i.e. r = 1 means interest rate is one percent). Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate.Use the graph to answer the questions that follow. a.What is the value of the MPC?b.What is the value of the MPS?c.What is the value of the multiplier?d.What is the amount of unplanned investment at aggregateoutput of 300, 900, and 1,300?
