Begin with the formula showing how households can divide their income. Then use this formula and the expenditure approach to GDP to show how investment is financed from three sources
What will be an ideal response?
The formula showing how households can divide their income is Y = C + S + T, where Y is income, C is consumption expenditure and T is taxes. According to the expenditure approach income, GDP = C + I + G + X – M. But income, Y, equals GDP. So, setting the equalities equal to one another and removing C since it is on both sides gives I + G + X - M = S + T. Moving G, X and M to the right hand side gives the final result: I = S + (T - G) + (M - X). Here we see that investment is financed by private saving, S, government saving, (T - G), and borrowing from the rest of the world, (M - X).
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An economic growth model explains
A) how changes in the money supply affect real interest rates. B) changes in government tax policies over time. C) the growth rate of the price level over time. D) changes in real GDP per capita in the long run.
In a common-value auction
a. Every bidder knows the exact value of the item being auctioned b. Each bidder only has an estimate of the value of the item c. The value is different for each bidder d. All of the above
During the late 1990s, actual output in the United States appears to have exceeded potential output. Under these circumstances, we would eventually expect factor prices to ___________
Fill in the blank(s) with the appropriate word(s).