econ pro #7 - Bochi Liu Econ 100B Sec 112 Problem#7 2.The...

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Bochi Liu Econ 100B Sec 112 Problem #7 2.The desired saving function is the positive relationship between desired saving and the world interest rate. The desired saving function slopes upward because higher interest rate leads to higher saving return. The desired investment function is the inverse relationship between desired investment and the world interest rate. The desired investment slopes downward because higher interest rate causes higher user capital cost, and less investment. The intersection point shows when the market is in equilibrium, the amount of desired saving equals to the amount of desired investment. 3.Endogenous: desired saving, desired consumption, desired investment, world interest rate. Exogenous: wealth, current income, future expected income, government purchase, tax rate, expected future marginal product of capital, tax-adjusted user cost of capital. 4.A rise in current output increases both saving and consumption.
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