1) Explain the difference between saving and investment as defined by a macroeconomist. Which of the following situations represent investment? Saving? Explain.

a) Your family takes out a housing loan and buys a new house.

b) You use your RM 200 paycheck to buy stock in TM.

c) Your roommate earns RM 100 and deposits it in her account at a bank.

2) Suppose GDP is RM 8 billion, taxes are RM 1.5 billion, private saving is RM 0.5 billion, and public saving is RM 0.2 billion. Assuming this economy is closed, calculate consumption, government purchases, national saving, and investment.

3) Suppose the government borrows RM 20 million more next year than this year.

a) Use a supply-and-demand diagram to analyze this policy. Does the interest rate

rise or fall?

b) What happens to investment? To private saving? To public saving? To national

saving? Compare the size of the changes to the RM 20 million of extra government

borrowing.