If all of the households and businesses in the economy start saving more during economic hard times, then aggregate income will fall, hurting everyone in the economy. This is known as: A) the quantity theory. B) the crowding-out theory. C) the paradox of thrift. D) the permanent income hypothesis
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- This question has two parts and concerns the permanent income hypothesis. Which statement best defines the permanent income hypothesis? Consumer spending depends on the level of disposable income that people expect to have over the course of their lifetime. When in a recession, although current consumer spending can be observed, future consumer spending cannot be predicted due to an unknown number of people leaving their temporary recession jobs for higher‑paying, permanent jobs that better fit their skills. Consumer spending depends on both the income and wealth of people in the economy. Consumer spending is proportional to the ratio of people in stable full‑time employment (that is, with "permanent" income) and people in unstable part‑time employment (that is, with "temporary" income). According to the permanent income hypothesis, which situations would result in an immediate increase in consumer spending, which would result in an immediate decrease in consumer spending,…The greater is the marginal propensity to consume, the smaller is the marginal propensity to save. 1) True 2) False A rise in the price level decreases the real value of financial assets with fixed money values and, as a result, decreases spending by the holders of these assets. 1) True 2) FalseFrom 1990 to 1995, the U.S. economy was in a recessionary gap. According to the classical economists, which of the following should have occurred? Group of answer choices interest rates should have fallen which would increase consumer and investment spending prices should have fallen which would increase consumer spending all of the above should have occurred wages should have fallen which would cause more workers to be hired
- Keynesian economics predicts that if government policy makers deem current equilibrium real Gross Domestic Product (GDP) to be "too low," then an appropriate policy action would be to do nothing, because the economy is self-adjusting. raise government spending, thereby increasing aggregate demand and pushing up real Gross Domestic Product (GDP) with little or no inflationary consequences. increase taxes, thereby causing aggregate demand to increase and inducing a rise in real Gross Domestic Product (GDP) with little or no inflationary consequences. reduce the money stock, thereby causing aggregate demand to decrease and inducing a rise in fall in the price level that generates an increase in total planned expenditures.Which of following statements explains why the consumption of all 'weak-willed' households tends to closely track their income? Select one: a. Households suffering from 'weakness of will' try to live beyond their means. b. Households suffering from 'weakness of will' are unlikely to have accumulated savings. c. Households suffering from weakness of will are unlikely to make the effort to find alternative income and employment in the face of a negative shock. d. Weak-willed households tend to borrow more to sustain consumption if their income fallsCrowding out will be greater A. the more sensitive investment spending is to changes in the interest rate. B. if the economy is in recession, rather than at full employment. C. the further equilibrium GDP is below potential GDP. D. the less sensitive consumption spending is to changes in the interest rate.
- Macroeconomics Question No.5 State whether the following statements are true, false or uncertain. Also provide the explanation of false statements: The higher the level of income, higher will be the marginal propensity to consume. If marginal propensity to consume increases, aggregate demand curve will become flatter. The value of marginal propensity to consume must lies between 0 and 1. There is a direct relationship between interest rate and money supply. Government will use expansionary fiscal policy to control inflation.In this question, we assume Canada is a closed economy and is in its long-run equilibrium. TransCanada announced that they will not proceed with the East Energy pipeline in October 2017. According to the long-run classical model, what happens to the equilibrium levels of output, real interest rate, and investment in Canada after TransCanada made this announcement? What happens to the real wage in Canada? Explain your answer with the aid of TWOdiagrams - one for the loanable funds market and one for the labour market.Question Consider an economy described by the following equations: Y = C+I+G C = 100+0.75 (Y-T) I = 500-50r G = 125 T = 100 where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at its natural rate), GDP would be 2,000. What is the marginal propensity to consume in this economy? Suppose the central bank’s policy is to adjust the money supply to maintain the interest rate at 4 percent, so r = 4. Solve for GDP. How does it compare to the full-employment level? Assuming no change in monetary policy, what change in government purchases would restore full employment? Assuming no change in fiscal policy, what change in the interest rate would restore full employment?
