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

a. Your family takes out a mortgage and buys a new house.

b. You use your $200 paycheck to buy stock in AT&T.

c. Your roommate earns $100 and deposits it in her acct. at a bank.

d. You borrow $1,000 from a bank to buy a car to use in your pizza delivery business.

5. Suppose GDP is $8 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion and public saving is $0.2 trillion. Assuming this economy is closed, calculate consumption, government purchases, national savings and investment.

6. Suppose that Intel is considering building a new chip-making factory.

a. Assuming that Intel needs to borrow money in the bond market, why would an increase in

interest rates affect Intel's decision about whether to build a new factory?

b. If Intel has enough of its own funds to finance the new factory without borrowing, would an

increase in interest rates still affect Intel's decision about whether to build the factory?

Explain.

7. This chapter explains that investment can be increased both by reducing taxes on private saving and by reducing the govt. budget deficit.

a. Why is it difficult to implement both of these policies at the same time?

b. What would you need to know about private saving to judge which of these two policies

would be a more effective way to raise investment?