Supply and Demand Analysis in Real Interest Rate, National Saving, and Investment Predicting

ASSIGNMENT

Directions

Instead of a discussion board, this week you will submit an individual written assignment. For each of the following scenarios, use supply and demand analysis to predict the resulting changes in the real interest rate, national saving, and investment. This assignment uses the model presented in the “Financial Markets” video lecture.

Show all diagrams. Diagrams may be hand drawn but must be neatly presented. You may find it easiest to draw your graphs on paper, take a photo, and upload the file to support your written answers. If you are familiar with a digital drawing tool, that is also an option. All elements of each graph should be fully labeled.

1. The legislature passes a 10 percent investment tax credit. Under this program, for every $100 that a firm spends on new capital equipment, it receives an extra $10 in tax refunds from the government.
2. A reduction in military spending moves the government’s budget from deficit into surplus.
3. A new generation of computer-controlled machines becomes available. These machines produce manufactured goods much more quickly and with fewer defects.
4. The government raised its tax on corporate profits. Other tax changes are also made, such that the government’s deficit remains unchanged.
5. Concerns about job security raise precautionary saving.
6. New environmental regulations increase firms’ costs of operating capital.

Response Parameters

• Assignments should be typed, double spaced, and use 12-point font
• There is not a minimum word count; however, focus on clear, concise, complete answers

Lecture

“Saving”
By Sherry Jensen, PhD

• This presentation will define saving, explore the reasons why people save, and discuss national saving
  https://mediacdn.bisk.com/AssetService/preview/?mawID=ddc79565-6df4-4c5c-b5d6-041cac20450d&d=0

Lecture

“Investment and Capital Formation”

By Sherry Jensen, PhD

• This presentation will examine investment and discuss bonds and stocks
  https://mediacdn.bisk.com/AssetService/preview/?mawID=4e3e1ebe-87d9-4fe2-bdba-f0941f07c896&d=0

Lecture

“Financial Markets”

By Sherry Jensen, PhD

• This presentation will apply the financial market model to show the impact of changes in the supply of saving and the demand of investment
  https://mediacdn.bisk.com/AssetService/preview/?mawID=0e8a39ea-7173-4eef-af7d-f69100402972&d=0

Reading

Principles of Macroeconomics, 8th Edition

By Frank, Bernanke, Antonovics, and Heffetz

• Chapter 9, “Saving and Capital Formation”
• Chapter 11, “Financial Markets and International Capital Flows”