a. Suppose a government moves to reduce a budget deficit. Using the long-run model of the economy developed in Chapter 3, graphi
cally illustrate the impact of reducing a government's budget deficit by reducing government purchases. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction curves shift; and. the terminal equilibrium values. b. State in words what happens to: i. the real interest rate;ii. national saving; iii. investment; iv. consumption; and v. output
2 answers:
Answer:
Since the government will reduce its spending level, that will result in:
- decrease in the interest rate since the government will not need to borrow money (or it will need to borrow less)
- national savings will increase since the deficit decreases
- investment (= national savings) will increase due to the lower interest rates
- in the long run consumption remains unchanged but in the short run it will decrease because aggregate demand decreases (aggregate demand will decrease by change in G / MPS), but soon consumption increases back
- output is unchanged because the factors the factors of production remain unchanged (only a technological breakthrough would increase it)
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Answer:
Following are the solution to the given point.
Explanation:
For question 1:
Economic gains are distinct from bookkeeping gains. Accounting value also takes into account the cost of potential.
that's why "option a" is correct.
For question 2:
The "option d" is correct.
For question 3:
The "option c" is correct.
Answer:
a) Baker's profit margin = 7.5%
b) No change on return on total assets
Explanation:
a) Assets Turnover = = 1.6 times
Return on total assets = = 12%
Then we have profit margin on sales = =
= 7.5%
b) In case asset turnover declined to 2 times with profit margin of 6% then Return on total assets = Asset turnover ratio X Profit Margin
= 2 X 6% = 12%
Thus there is no change in that case on return on total investments.
a) Baker's profit margin = 7.5%
b) Thus there is no change in that case on return on total investments.
Answer:
The correct answer is $45,720.
Explanation:
According to the scenario, the given data are as follows:
Payment (pmt) = $16,000
Rate of interest (R)= 3.5% = .035
Time (t) = 30 years
Time (compounded daily ) (n) = 365days
(nt) = 365 ×30 = 10950 days
So, we can calculate future value after 30 years by using following formula:
FV = pmt ×
= $16,000 ×
= $16,000 × 2.8575
= $45,720
Hence, the future value after 30 years will be $45,720.