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1. Explain the difference between saving and investment as defined by a macro economist. Which of the following situations represent investment? Saving? Explain. 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 her account at a bank. d. You borrow $1,000 fr om a bank to buy a car to use in your pizza delivery business. 2. 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,
Answer : To a macroeconomist, saving occurs when a persons income exceeds his consumption, while investment occurs when a person or firm purchases new capital, such as a house or business equipment. When your family takes out a mortgage and buys a new house, that is investment because it is a purchase of new capital. When you use your $200 paycheck to buy stock in AT&T, that is saving because your income of $200 is not being spent on consumption goods. When your roommate earns $100 and deposits it in her account at a bank, that is saving because the money is not spent on consumption goods. d.When you borrow $1,000 from a bank to buy a car to use in your pizza-delivery…

s, that is investment because thecar is a capital good 2.Given that Y = 10, T = 2, Sprivate = 0.7 = Y T C, Spublic = -0.1 = T G. Because S = Y T C, then rearranging gives C = Y T S = 10 2 0.7 = 7.3. Because S = T G, then rearranging gives G = T S = 2 (-0.1) = 2.1. Because S = national saving = S + S = 0.7 + (-0.1) = 0.6. Finally, because I = investment = S, I = 0.6.



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