Reference no: EM131090337
Your economy has a marginal propensity to consume (MPC) of 0.70. It is currently operating at a level at less than full employment. Prices appear to be sticky in this economy, but by some lucky stroke the rate of interest falls. This interest rate change causes private investment (I) to rise by 40 billion dollars.
1. Using the Keynesian Cross diagram indicate by how much national income (Y) will rise once the economy completely absorbs the 40 billion in new investment? Describe the logic by which you get to get your answer.
2. What will happen to the level of national savings (S) once the economy has fully reacted to the new 40 billion in investment? Describe the logic by which you get to your answer.
3. What does the dynamic that you just described in (1) and (2) above tell you about the shape of the IS curve? How is the IS curve (its slope and position in the graph) related to the economy’s Investment Demand Function?
Now, introduce a fixed level of REAL BALANCES (money supply) into the economy (M/P), Represent this on the fixed-price IS-LM diagram.
4. In the IS-LM diagram, there is no fall in the interest rate, but there is a new $40 billion spending by your government. Does this government spending have the same impact on national income as the $40 billion new “I” did in your answer to part (1) above? If yes, why? If not, why not?
Bundled maintenance contract for periodic repairs
: When Kodak leased large photocopiers to businesses, they also bundled a maintenance contract for periodic repairs. Third-party repair firms claimed that Kodak violated antitrust laws because this bundle guaranteed Kodak a monopoly on repairs and excl..
|
What is this investment internal rate of return
: Nancy's Notions pays a delivery firm to distribute its products in the metro area. Delivery costs are $36,000 per year. Nancy can buy a used truck for $7,000 that will be adequate for the next 3 years. What is this investment's internal rate of retur..
|
What is the firm marginal cost
: Suppose a firm’s production function is given by Q = L1/2*K1/2. The Marginal Product of Labor and the Marginal Product of Capital are given by: MPL =(K^1/2)/(2L^1/2) , and MPK =(L^1/2)/(2K^1/2). Suppose the price of labor is w = 25, and the price of ..
|
Aggregate supply and demand with upward sloping sras curve
: Why does the SRAS slope upward to the right. What exogenous force determines the overall position of this upward sloping curve on the graph? Show how this decision would affect the SRAS, price level and income level on your graph from the short run i..
|
Economy has marginal propensity to consume
: Your economy has a marginal propensity to consume (MPC) of 0.70. It is currently operating at a level at less than full employment. Prices appear to be sticky in this economy, but by some lucky stroke the rate of interest falls. Using the Keynesian C..
|
Define strategic competitiveness and above-average returns
: Define strategic competitiveness and above-average returns. What is the relationship between strategic competitiveness and returns on investment? Explain why it is important for organizations to analyze and understand the external environment. Descri..
|
Outside of residential investment and on real interest rate
: Assume changes in regulation make it easier for households to get mortgages from banks. Seeing this, firms find it more profitable to build more houses, so residential investment increases. What effect do you think this might have on investment outsi..
|
Several internal and external assessment methods
: Several internal and external assessment methods were discussed within this unit. Identify and discuss three internal assessment methods that you feel are most effective and three that you feel are least effective. Identify and discuss three external..
|
Pay for such security having principal value
: A 5 year treasury note has a coupon rate of 2.50%. What price would you pay for such a security having a principal value (par value) of $1 million if the current interest rate is 2.25%? The current interest rate is 3%? (to simplify the calculations, ..
|