【正文】 ng this equation for r, we find: r = or 2%.11. To determine the effect on investment of an equal increase in both taxes and government spending, consider the national ine accounts identity for national saving: National Saving = [Private Saving] + [Public Saving] = [Y – T – C(Y – T)] + [T – G]. We know that Y is fixed by the factors of production. We also know that the change in consumption equals the marginal propensity to consume (MPC) times the change in disposable ine. This tells us that ΔNational Saving = {–ΔT – [MPC 180。 (– ΔT)]} + [ΔT – ΔG] = [– ΔT + (MPC 180。 ΔT)] + 0 = (MPC – 1) ΔT. The above expression tells us that the impact on national saving of an equal increase in T and G depends on the size of the marginal propensity to consume. The closer the MPC is to 1, the smaller is the fall in saving. For example, if the MPC equals 1, then the fall in consumption equals the rise in government purchases, so national saving [Y – C(Y – T) – G] is unchanged. The closer the MPC is to 0 (and therefore the larger is the amount saved rather than spent for a onedollar change in disposable ine), the greater is the impact on saving. Because we assume that the MPC is less than 1, we expect that national saving falls in response to an equal increase in taxes and government spending. The reduction in saving means that the supply of loanable funds curve will shift to the left in Figure 33. The real interest rate rises, and investment falls.12. a. The demand curve for business investment shifts out to the right because the subsidy increases the number of profitable investment opportunities for any given interest rate. The demand curve for residential investment remains unchanged. b. The total demand curve for investment in the economy shifts out to the right since it represents the sum of business investment, which shifts out to the right, and residential investment, which is unchanged. As a result the real interest rate rises as in Figure 34. c. The total quantity of investment does not change because it is constrained by the inelastic supply of savings. The investment tax credit leads to a rise in business investment, but an offsetting fall in residential investment. That is, the higher interest rate means that residential investment falls (a movement along the curve), whereas the rightward shift of the business investment curve leads business investment to rise by an equal amount. Figure 35 shows this change. Note that .13. In this chapter, we concluded that an increase in government expenditures reduces national saving and raises the interest rate. The increase in government expenditure therefore crowds out investment by the full amount of the increase. Similarly, a tax cut increases disposable ine and hence consumption. This increase in consumption translates into a fall in national saving, and the increase in consumption crowds out investment by the full amount of the increase. If consumption depends on the interest rate, then saving will also depend on it. The higher the interest rate, the greater the return to saving. Hence, it seems reasonable to think that an increase in the interest rate might increase saving and reduce consumption. Figure 36 shows saving as an increasing function of the interest rate. Consider what happens when government purchases increase. At any given level of the interest rate, national saving falls by the change in government purchases, as shown in Figure 37. The figure shows that if the saving function slopes upward, investment falls by less than the amount that government purchases rises by. This happens because consumption falls and saving increases in response to the higher interest rate. Hence, the more responsive consumption is to the interest rate, the less investment is crowded out by government purchases.14. a. Figure 38 shows the case where the demand for loanable funds is stable but the supply of funds (the saving schedule) fluctuates perhaps reflecting temporary shocks to ine, changes in government spending, or changes in consumer confidence. In this case, when interest rates fall, investment rises。 when interest rates rise, investment falls. We would expect a negative correlation between investment and interest rates. b. Figure 39 shows the case where the supply of loanable funds (saving) is stable, whereas the demand for loanable funds fluctuates, perhaps reflecting changes in firms’ expectations about the marginal product of capital. We would now find a positive correlation between investment and the interest rate—when demand for funds rises, it pushes up the interest rate, so we observe that investment and the real interest rate increase at the same time. c. If both curves shift, we might generate a scatter plot as in Figure 310, where the economy fluctuates among points A, B, C, and D. Depending on how often the economy is at each of these points, we might find little clear relationship between investment and interest rates. d. Situation (c) seems fairly reasonable—as both the supply of and demand for loanable funds fluctuate over time in response to changes in the economy.Chapter 3—National Ine: Where It Comes From and Where It Goes 21