Problem
A. In what way is a university or college degree a form of capital?
B. Explain how higher saving leads to a higher standard of living. What might deter a policymaker from trying to raise the rate of saving?
C. How does the rate of population growth influence knowledge, the level of GDP per person?
D. Suppose that society decided to reduce consumption and increase investment. How would this change affect economic growth? What groups in society would benefit from this change? What groups might be hurt?
E. For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain. a. a bond of the Canadian government or a bond of an East European government b. a bond that repays the principal in year 2015 or a bond that repays the principal in year 2025 c. a bond from Coca-Cola or a bond from a software company you run in your garage d. a bond issued by the federal government or a bond issued by Prince Edward Island
F. Suppose the government borrows $20 billion more next year than this year. Use a supply-and-demand diagram to analyze this policy. a. Does the interest rate rise or fall? b. What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government borrowing. c. How does the elasticity of supply of loanable funds affect the size of these changes?
G. Suppose GDP is $800 billion, taxes are $150 billion, private saving is $50 billion, and public saving is $20 billion. Assuming this economy is closed, calculate consumption, government purchases, national saving, and investment.