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e. do both a and c.
24. An increase in the supply of national savings curve would
a. increase real interest rates.
b. decrease real interest rates.
c. increase the dollar amount of investment.
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d. do both a and c.
e. do both b and c.
25. When inventories are low, there is a _______ expected rate of return on new investment and
the investment demand curve shifts to the ________.
a. higher; right
b. higher; left
c. lower; right
d. lower; left
26. If you expected higher future earnings, you would tend to save _________ now at any given
interest rate shifting the saving supply curve to the _________.
a. more; right
b. more; left
c. less; right
d. less; left
27. At a higher than equilibrium real interest rate, the quantity of savings supplied would be ________ than the
quantity of investment demanded there would be a _________ of savings at this real interest rate.
a. greater; shortage
b. greater; surplus
c. less than; shortage
d. less than; surplus
28. A budget deficit
a. adds to national savings.
b. lowers the interest rate.
c. increases private investment.
d. does none of the above, other things equal.
29. An increase in the interest rate
a. shifts the supply of saving curve to the right.
b. shifts the supply of saving curve to the left.
c. shifts the investment demand curve to the right.
d. shifts the investment demand curve to the left.
e. does none of the above.
30. An increase in expectations about the profitability of investment will tend to
a. increase both the interest rate and the level of investment.
b. decrease both the interest rate and the level of investment.
c. increase the interest rate and decrease the level of investment.
d. decrease the interest rate and increase the level of investment.
31. Suppose investors become pessimistic about the economy, lowering their expected returns on investment projects.
The results would include
a. a leftward shift in the supply of loanable funds.
b. a rightward shift in demand for loanable funds.
c. a smaller quantity of funds changing hands in the loanable funds market.
d. the interest rate falling.
e. both c and d.
32. If the equilibrium interest rate increases and quantity of funds traded in the loanable fund market decreases,
it could have been caused by
a. investors becoming more optimistic about profit prospects.
b. investors becoming more pessimistic about profit prospects.
c. households deciding to save less.
d. households deciding to save more.
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Problems
1. Why might governments sometimes try to combat recessions by lowering interest rates?
2. What would happen to the investment demand curve if new potentially profitable technologies
arise and business taxes are raised at the same time?
3. What would happen to the saving supply curve if there was both an increase in current disposable
income and people expected higher earnings in the near future?
4. Starting from equilibrium in the saving and investment market, what changes in saving supply or
investment demand would tend to cause a surplus of funds at the current interest rate? What changes
in saving supply or investment demand would tend to cause a shortage of funds at the current interest rate?
5. What happens to net taxes when transfer payments increase? When both taxes and transfer payments increase?
6. Other things equal, which direction will an increasing budget deficit change the equilibrium interest rate, the
saving supply curve, the level of investment in the economy, and the likely rate of economic growth, other things
equal?
7. Why will a given government budget deficit have a smaller effect on investment in an open economy than a closed
economy?
8.
Short-Run
Production
Function
Quantity of Labor
a. Show what the equilibrium real wage, quantity of labor, and real GDP would be.
b. Show what would happen to the equilibrium real wage, quantity of labor, and real GDP if the supply of labor
shifted right.
c. Show what would happen to the equilibrium real wage, quantity of labor, and real GDP if the supply of labor
shifted left.
9.
Supply of Labor
Demand for
Labor
Quantity of Labor
a. What happens to the supply and demand curves if business expectations increase and new profitable technologies
are discovered?
b. What happens to the supply and demand curves if inventories increase and business taxes increase.
c. What happens to the supply and demand curves if regulatory costs increase and inventories decrease.
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Real GDP
Real Wages
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d. What happens to the supply and demand curves if disposable income increases and expected future earnings
decrease?
e. What happens to the supply and demand curves if disposable income decreases and expected future earnings
increase?
f. What happens to the supply and demand curves if taxes on current earnings decrease and expected future
earnings increase?
10.
SS
ID
Quantity of Saving and Investment
a. What happens to the supply and demand curves if business expectations and disposable income both increase?
b. What happens to the supply and demand curves if profitable new technologies are invented and expected future
income increases?
c. What happens to the supply and demand curves if inventories increase and expected future income decreases?
d. What happens to the supply and demand curves if increasingly costly business regulations are imposed, along
with increased taxes on current earnings?
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Real Interest Rate
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