Answered: In the classical model with fixed…

In the classical model with fixed income (Chapter 3,) if households save less than firms invest, then: A. output falls. B. the interest rate falls. C. the interest rate rises. D. output increases.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter9: Classical Macro Economics And The Self Regulating Economy

Section: Chapter Questions

Problem 3QP

See similar textbooks

Related questions

Q: What determines the slope of a consumption function?

A: Consumption, represented as expenditure for utility acquirement. Consumption involves the ultimate…

Q: describe what is held constant along the consumption function.

A: The consumption function is defining as the relationship between the various factors and consumer…

Q: Multiple choice question and give a short explanation about your answer: Which of the following is…

A: When talking about consumption behavior, it can be said that an individual make consumption using…

Q: The Role of the Consumption Function

A: Consumption function is defined as C= c+bY Where c is autonomous consumption ie the amount which…

Q: Which of the following should NOT be considered as part of fixed investment? 1. Toyota buys a new…

A: According to the economist investment is such a concept which focuses on the goods production in…

Q: b) With an example, elaborate the consumption function

A: Consumption Function:- The link among consumer expenditure and the numerous variables that impact it…

Q: B. Explain the following functions , and establish the independent variable for the function I=f(r)&…

A: A function can be termed as a binary relationship between two sets of variables such that the…

Q: Explain the difference between saving and investment as defined by a macroeconomist. c. Which of…

A: DISCLAIMER “Since you have asked multiple question, we will solve the first question for you. If…

Q: Equation for finding the steady state of equilibrium for investment

A: The Solow Growth Model is an exogenous economic growth model that examines changes in an economy's…

Q: A movement along the consumption function is the result of changes in*

A: Ans. 1 The Consumption Function or the Keynesian Consumption function is defined as an economic…

Q: Question 6 Standard macroeconomic theory predicts that if firms become more optimistic about future…

A: The branch of economics that deals with studying the overall economy as a whole including economic…

Q: Use the concepts of gross investment and net investment to distinguish between an economy that has a…

A: In the computation of the GDP, the main components that are evaluated are the personal consumption…

Q: Clearly explain the characteristics of the consumption function.

A: Consumption Function is defined as C=c¯+bY where c¯ is autonomous consumptionb is marginal…

Q: Use the concepts of gross investment and net investment to distinguish between an economy that has a…

A: Gross investment comprises of total investment goods. These are those which replace equipment and…

Q: Induced consumption is: (a) the part of consumption which is independent of the level of income.…

A: Induced consumption refers to the part of the consumption that is dependent on disposable income.

Q: What does it mean when talking about full income and price when considering the household…

A: The utility-maximizing choice on the initial budget constraint is M. The dashed horizontal and…

Q: Given the following on a closed economy. C = 40 + 0.8Yd C= consumption I= Investment I = 55 – 200 G…

A: A closed economy is the one which does not trade with other economies with respect to goods and…

Q: The salary of a consumer increased from ¢90, 000 to ¢110,000, which represents his salary for 2021…

A: Given: Salary in 2021=90000 Salary in 2022=110000

Q: Explain what the consumption function shows, and describe what is held constant along the…

A: The consumption function is an important concept of national income. It relates to the consumption…

Q: Suppose investment is a function of income. Explain the impact of an increase in income on the…

A: Investment is key factor that drive up the economic growth of economy. More investment activities…

Q: A year ago a country reduced the tax rate on all interest income from 20% to 10%. During the year…

A: The substitution effect states that a rise in the price of a good would enable customers to go for…

Q: Please help with the following economic question : Explain the relationship between Investment…

A: Changes in the current interest rate have an impact on the amount of investment in the economy.…

Q: Which one of the following is NOT a possible relationship between income and spending Select one: a.…

A: The equation that shows the relationship between the income and spending is written as C=a+bYd Yd is…

Q: A person’s disposable income decreases, and his personal income remains unchanged. This is because…

A: Disposable income of the consumer is that income which consumer have recieve after deduction taxes…

Q: Create a diagram to explain the three main characteristics of the consumption function.

A: The consumption function shows the relationship between the consumption and level of income.

Q: In Classical theory, Saving may increase due to decrease in Interest Rate

A: Classical economists tend to maintain that the economy is always capable to achieve the natural…

Q: Find the value of output if the given sales is $80 and the change in stock is $15??? National…

A: Generally in the given question, Sales amount is = $80 Change in the stock = $15 Value of output…

Q: Role of investment function

A: Answer: The investment function illustrates the Investment- Interest rate relationship. It explains…

Q: In the classical model, savings and investment determine the rate of interest. O True O False

A: Classical model assumes that markets are self regulating and operates at full employment.

Q: Smoothing consumption and income are motivations for several actions that individuals take- saving,…

A: Consumption Soothing Consumption smoothing is an macroeconomic framework that explains people's need…

Q: 1) Consider the following economy: Č = 3,1 = 1.5, Ğ = 2.65,T = 2,f = 0.5, d = 0.1,a 0.8 %D %3D %3D…

A: 1) It is given that, Autonomous consumption = 3 Induced investment =1.5 Government expenditure =…

Q: 3. Use the neoclassical theory of investment to analyze using the model and the graphs how these…

A: The theory that in turn explains at a particular span of time the amount of capital stock of a firm…

Q: What is the proponsity to consumption function? explain with formulae of average propensity to…

A: The consumption function is relationship between the consumption and income level.

Q: ______ Is that type of investment which is not affected by change in the level of output or income

A: According to the given question Investment is basically known as the item of the asset which goal in…

Q: Explain the difference between saving and investment as defined by a macroeconomist

A: According to macroeconomist, Savings refer to excess of income over consumption. This implies…

Q: Multiple choice question and give a short explanation about your answer: According to the Fisher…

A: In the two-period model, the consumers behave rationally and smooth their consumption in the current…

Q: Who gave the relative income hypothesis of consumption?

A: The relative income hypothesis implies that consumption of the current period is not dependent upon…

Q: Give any two example of the capital expenditure??

A: According to the given question Capital expenditure is basically defined as an expenditure which led…

Concept explainers

Factor Models

Many attributes might be related to an asset's risk, including market capitalization (size), dividend yield, growth, price-earnings ratio, etc. The use of these traditional descriptors, however, presents a few problems:

Question

In the classical model with fixed income
(Chapter 3,) if households save less than firms
invest, then:
A. output falls.
B. the interest rate falls.
C. the interest rate rises.
D. output increases.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Who gave the relative income hypothesis of consumption?
Explain the difference of income and employment in an economy with the help of complete classical model?
The Average Propensity to Save is: A. the percentage of income that is saved B. the percentage of income that is consumed C. the percentage of income that is spent D. the percentage of income that is invested
Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000; C = 6,000; T = 1,500; G = 1,700. The economists also estimate that the investment function is: I =3,300 –100r where r is the country’s real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate
How does a Classical Economist account for savings? A. Investment B. Dissavings C. Consumptin D. Full Employment
Please answer the following question. Thanks! Consider a classical economy described as follows: ? = ?^(1/2)?^(1/2) , where L is the amount of labor and K is the amount of capital. The economy has 10,000 units of labor and 10,000 units of capital. Consumption (C): 5,020-100r, Investment (I) : 2,000-100r, Taxes (T): 2,500, Government Purchases (G) :3,000
Soon after his election in 1992, President Clinton proposed reducing government spending and increasing taxes For each variable state if it will INCREASE, DECREASE or REMAIN UNCHANGED. In at least one complete sentence state WHY this change will occur. Be specific. Private Saving (Sp): Consumption: (C) Government Saving (Sg) Total Saving: (S) Real Interest Rates: (r) Investment: (I)
Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000 C = 6,000 T = 1,500 G = 1,700 The economists also estimate that the investment function is: I = 3,300 – 100 r, Where r is the country’s real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate.
Create a diagram to explain the three main characteristics of the consumption function.
Assume that consumption decreases, when interest rates increase. If there is a technological advance that leads to an increase in investment demand, then: A. investment increases and the interest rate rises. B. investment and the interest rate are both unchanged. C. investment is unchanged and the interest rate rises. D. investment decreases and the interest rate rises.
Investment is driven by all of the following except ____________.
What is the equilibrium real interest rate? The real interest rate is ____ percent a year. Screenshot attached thanks