Using the values in the table above, and assuming that the real interest rate equals 4, calculate equilibrium values for consumption, household saving, investment, and net exports. Use these values to confirm that the goods market is in equilibrium
What will be an ideal response?
Entering the given values in the IS curve equation yields Y = 18.7. Plugging Y and r into the consumption equation yields C = 12.7. Subtracting C + T from Y gives household saving = 4. The investment equation using these values of Y and r yields I = 3.4. The net exports equation yields NX = 0.6. Note that S = NX + I - (G - T), so the goods market is in equilibrium. Also, Y = C + I + G + NX, so the goods market is in equilibrium.
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One policy that would increase the saving rate would be
A) raising taxes on the returns to saving. B) raising taxes on the returns to investment. C) taxing consumption. D) raising taxes on saving.
When drawn against the current wage, the current labor supply shifts to the right if
A) current taxes increase. B) future taxes decrease. C) firms make more profits. D) total factor productivity increases.