Ch 25 Study Guide National Savings = Y-C-G = I6000 - 4000 – 1200 = 800 Y – T – C 6000 – 1000...
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Ch 25 Study Guide National Savings = Y-C-G = I 6000 - 4000 – 1200 = 800 Y – T – C 6000 – 1000 – 4000 = 1000 T – G = - 200
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Transcript of Ch 25 Study Guide National Savings = Y-C-G = I6000 - 4000 – 1200 = 800 Y – T – C 6000 – 1000...
Ch 25 Study Guide
National Savings = Y-C-G = I 6000 - 4000 – 1200 = 800
Y – T – C 6000 – 1000 – 4000 = 1000
T – G = - 200
• d. Is the government’s budget policy contributing to growth in this country or harming it?
Harming it because…….
Supply of LF is shifting Left (reducing natl. savings)
Raising ( r ) and therefore decreasing I
You can not have growth without growth in Capital
Real Int Rate Q of LF Supply Q of LF Demand
6 1300 700
5 1200 800
4 1000 1000
3 800 1200
2 600 1500
4% $1,000
2% : S = $600 ; D = $1500 = shortage = market forces Real Int Rate up
Decrease Savings by $400 at any given Int. Rate
5% $800
d. Start at equilibrium; government gives investment tax credit ; stimulates D for LF by $400 at any real int. rate ; new equilibrium?
5% $1200
Bonus: Compare parts c. and d.
• Which is most likely to increase growth?
