3. Saving is the income remaining after households pay their taxes and pay for consumption.

While
investment is the purchase of new capital.

a. Investment. Because they buy the new house and that is the new capital for investment.

b. Saving. Because that money is not for consumption.

c. Saving. Because

d. Investment. Because they invest the new capital for their purpose.

4.

(I) GDP: 8 trillion (Y)

(II) Taxes: 1.5 trillion (T)

(III) Private saving: 0.5 trillion

(IV) Public saving: 0.2 trillion

Consumption? G. purchases? National saving? Investment?

- Consumption (C) = (I) – (II) – (III) = 8 – 1.5 – 0.5 = 6 trillion

- Government purchases (G) = (II) + public saving = 1.5 + 0.7 = 2.2 trillion
- National saving =(I) – (C) – (G) = 8-6-2.2 = -0.2
- Investment = national saving = -0.2

5.

Y = 10,000

C = 6,000

T = 1,500

G = 1,700

I= 3,300 -100r (r is the country’s real interest rate, %). Private saving? Public saving? National saving?
Investment? Equilibrium real interest rate.

- Private saving = Y – T – C = 2,500

- Public saving = T – G = -200
- National saving = Y – C – G = 2,300
- Investment = National saving = 2,300
- r = 10%

6.

a. If the interest rates increase, the cost of borrowing money also higher. So, the case of the new
building can’t not afford the returns is more likely to happen. So, it affect in the …..
b. Also affect.

7.