1. Explain the slopes of the saving an investment curves in real interest rate and S,I space.
2. Give two examples of changes that would shift the saving curve to the right and two examples of changes that would shift the investment curve to the right.
3. The higher the steady-state capital-labor ratio is, the more consumption each worker can enjoy in the long run. Explain your answer.
4. In the general equilibrium model of chapter 3, Mankiw assumes that consumption is a function of disposable income alone: C = C(Y-T). Modify the consumption function to make consumption depend on both after tax income and the level of real money balances (M/P) consumers hold (The assumption is that real balances are a part of wealth, and wealth affects how much we consume).
5. Show that if money demand (the demand for real balances) depends on the nominal rate of interest, then an increase in the rate of money growth now affects consumption, investment, and the real interest rate.