According to the Bureau of Economic Analysis, during the recession of 2007–2009, household saving as a fraction of dis- posable personal income increased from a low of just over 1 percent in the first quarter of 2008 to 5 percent in the second quarter of 2009. All else equal, what impact would this change in saving have on the MPC, MPS, and multiplier? How would this change affect equilibrium output when planned invest- ment changes?
1. According to the Bureau of Economic Analysis, during the
recession of 2007–2009, household saving as a fraction of dis-
posable personal income increased from a low of just over
1 percent in the first quarter of 2008 to 5 percent in the second
quarter of 2009. All else equal, what impact would this change
in saving have on the MPC, MPS, and multiplier? How would
this change affect equilibrium output when planned invest-
ment changes?
2. Assume in a simple economy that the level of saving is –500 when
save is 0.2. Derive the saving function and the consumption func-
tion, and draw a graph showing these functions. At what level of
aggregate output does the consumption curve cross the 45° line?
Explain your answer and show this on the graph.
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