1. Use the saving-investment diagram to analyze the effects of the following on national saving, investment, and the real interest rate. Explain your reasoning.

a. Consumers become more future-oriented and thus decide to save more. government purchases, to calculate the real interest rate that clears the goods market. What are the goods market-clearing values of consumption, saving, and investment? What are the tax-adjusted user cost of capital and the desired capital stock in this equilibrium? 8. (Appendix 4.A) A consumer has initial real wealth of 20, current real income of 90, and future real income of 110. The real interest rate is 10°/o per period.

a. Find the consumer's PVLR.

b. Write the equation for the consumer's budget constraint (using the given numerical values) and graph the budget line. Suppose that the consumer's goal is to smooth consumption completely. That is, he wants to have the same level of consumption in both the current and the future period.

c. How much will he save and consume in the current period?

d. How will his current saving and consumption be affected by an increase of 11 in current income?

e. How will his current saving and consumption be affected by an increase of 11 in future income? f How will his current saving and consumption be affected by an increase of 11 in his initial wealth? 9. (Appendix 4.A) A consumer lives three periods, called the learning period, the working period, and the retirement period. Her income is 200 during the learning period, 800 during the working period, and 200 again during the retirement period. The consumer's initial assets are 300. The real interest rate is zero. The consumer desires perfectly smooth consumption over her lifetime.

a. What are consumption and saving in each period, assuming no borrowing constraints? What happens if the consumer faces a borrowing constraint that prevents her from borrowing?

b. Assume that the consumer's initial wealth is zero instead of 300. Repeat Part (a). Does being borrowing-constrained mean that consumption is lower in all three periods of the consumer 's life than it would be if no borrowing constraints applied?

b. The government announces a large, one-time bonus payment to veterans returning from a war. The bonus will be financed by additional taxes levied on the general population over the next five years.

c. The government introduces an investment tax credit (offset by other types of taxes, so total tax collections remain unchanged).

d. A large number of accessible oil deposits are discovered, which increases the expected future marginal product of oil rigs and pipelines. It also causes an increase in expected future income.