Chapter 26. Saving, Investment, and the Financial System. Exercises 1-5. Gregory Mankiw. Principles of Economics 7th Edition.
1. For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain
a bond of the U.S. government or a bond of an Eastern European government.
b. a bond that repays the principal in year 2020 or a bond that repays the principal in year 2040
c. bond from Coca-Cola or a bond from a software company you run in your garage
d. bond issued by the federal government or a bond issued by New York State
2. Many workers hold large amounts of stock issued by the firms at which they work. Why do you suppose companies encourage this behavior? Why might a person not want to hold stock in the company where he works?
a. Your family takes out a mortgage and buys a new house.
b. You use your $200 paycheck to buy stock in AT&T.
c. Your roommate earns $100 and deposits it in his account at a bank
d. You borrow $1,000 from a bank to buy a car to use in your pizza delivery business
4. Suppose GDP is $8 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion. Assuming this economy is closed, calculate consumption, government purchases, national saving, and investment.
5. Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year:
𝑌=10,000
𝐶=6,000
𝑇=1,500
𝐺=1,700
The economists also estimate that the investment function is:
The economists also estimate that the investment function is:
𝐼=3,300−100𝑟
where r is the country’s real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate.
