Answer the Questions Below

question 61

Essay

Answer the questions below:
(A)Some argue that Japan's saving rate is too high. Suppose all Japanese citizens decide to save at a lower rate. Show what happens in this case in the saving and investment diagram where the S/Y curve shifts.
(B)Now show the same situation in the C/Y, I/Y, and X/Y diagrams. Which curve shifts? If the government share of GDP does not change, then what must happen to interest rates? Explain how this affects the four shares.
(C)Suppose that when the Japanese citizens began saving at a lower rate, the government reduced its level of spending, and the government share of GDP fell. Illustrate the effect on the interest rate using the saving-investment approach and the four-diagram approach in parts (A) and (B). What happens to the four shares of GDP?

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Definitions:

Quantity Demanded

The collective measure of a commodity or service that people are eager and have the means to purchase at an identified price level.

Quantity Supplied

Refers to the total amount of a good that producers are willing to sell at a given price over a specific period.

Equilibrium Price

The market cost where the supply of merchandise matches the demand level.

Equilibrium Quantity

The amount of products or services available matches the amount desired by consumers at the current market rate.