Suppose a country produces 50 units (Q) per year, and the world interest rate is 10%....

 

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Suppose a country produces 50 units (Q) per year, and the world interest rate is 10%. Consumption is also 50 units per year, and I=G=0. Suppose that unexpected production cuts occurred at zero period, and production decreased to 39 units, and then recovered to the average production level (50) from the following year. How much do you need to borrow at zero period to keep consumption levels constant in this country? How will consumption patterns change in the future? Suppose a country produces 50 units (Q) per year, and the world interest rate is 10%. Consumption is also 50 units per year, and I=G=0. Suppose that unexpected production cuts occurred at zero period, and production decreased to 39 units, and then recovered to the average production level (50) from the following year. How much do you need to borrow at zero period to keep consumption levels constant in this country? How will consumption patterns change in the future?

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1 In this case the country needs to borrow 11 units 50 39 11 at the zero period to keep consumption ... View the full answer