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Question: gregory mankiw macroecomomics 10th chapter 3 problems and applications 8...

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Gregory Mankiw, Macroecomomics (10th)
Chapter 3: Problems and Applications #8, 10, 11

8. The government raises taxes by $100 billion. If the marginal propensity to consume is 0.6, what happens to the following? Do they rise or fall? By what amounts? a. Public saving b. Private saving c. National saving d. Investment
10. Work It Out Consider an economy described as follows: Y 8,000 G 2,500 T= 2,000 C 1,000 +2/3 (Y-T) 1 = 1,200-100 r. a. In this economy, compute private saving, public saving, and national saving b. Find the equilibrium interest rate. c. Now suppose that G is reduced by 500 Compute private saving, public saving, and national saving. d. Find the new equilibrium interest rate.
11. Suppose that the government increases taxes and government purchases by equal amounts. What happens to the interest rate and investment in response to this balanced-budget change? Explain how your answer depends on the marginal propensity to consume
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