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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What will be an ideal response?
The median voter model
A) works well in the area of trade policy. B) is not intuitively reasonable. C) tends to result in biased tariff rates. D) does not work well in the area of trade policy. E) is not widely practiced in the United States.
If the value of the cross elasticity of demand is negative, the two goods are
A) complementary goods. B) substitute goods. C) normal goods. D) inferior goods.
Crowding out occurs when
a. increased taxes force higher levels of national saving. b. deficit spending by the government forces private investment spending to contract. c. local businesses cannot get government contracts because of the higher bids of large corporations. d. foreign investors are willing to pay higher prices for U.S. bonds than American citizens will pay.