Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506756
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter 11, Problem 11CQ
To determine
Impact of saving and spending of households in the economy.
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Students have asked these similar questions
Give typing answer with explanation and conclusion
Which of the following statements concerning consumption is incorrect?
A.
WEALTHY PEOPLE CONSUME MORE THAN OTHER PEOPLE.
B.
EXPECTATIONS ABOUT FUTURE PRICES AFFECT CONSUMPTION.
C.
MARGINAL PROPENSITY TO CONSUME USUALLY DECREASES AS INCOMES RISE.
D.
SAVINGS RATES DECREASE AS INCOME INCREASES.
E.
TAX INCREASES REDUCE CONSUMPTION.
Very briefly summarize the relationships shown by (a) the consumption schedule, (b) the saving schedule, (c) the investment demand curve, and (d) the multiplier effect. Which of these relationships are direct (positive) relationships and which are inverse (negative) relationships? Why are consumption and saving in the United States greater today than they were a decade ago?
How does a decrease in interest rates typically affect consumer spending and investment? A. Consumer spending decreases, investment increases B. Consumer spending increases, investment decreases C. Both consumer spending and investment increase D. Both consumer spending and investment decrease
Chapter 11 Solutions
Macroeconomics: Private and Public Choice (MindTap Course List)
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Similar questions
- Why will a reduction in the real interest rate increase investment spending, other things equal? Why is investment spending unstable?arrow_forwardWhy does a downshift of the consumption schedule typically involve an equal upshift of the saving schedule? What is the exception to this relationship?arrow_forwardWhy is saving called a leakage? Why is planned investment called an injection? Why must saving equal planned investment at equilibrium GDP in the private closed economy? Are unplanned changes in inventories rising, falling, or constant at equilibrium GDP? Explain.arrow_forward
- Consider an economy described by the following equations: Y = C + I + G C = 100 + 0.8 (Y - T); I = 300 – 30r; 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 the full employment (that is, at its natural rate), GDP would be 2,200. What is the marginal propensity to consume? What is the marginal propensity to save? a. 0.8; 0.2 b. 0.75; 0.25 c. None of the other answers is correct. d. 0.75; 0.5arrow_forwardConsider an economy described by the following equations: Y = C+I+G Y = 5000 G = 1000 T = 1000 C = 250 + 0.75(Y-T) I = 1000 - 50r In this economy, compute private saving, public saving, and national saving. Find equilibrium interest rate. Now suppose that G rises to 1250. Compute private saving, public saving, and national saving. Find the new equilibrium interest rate. Using your knowledge of Macroeconomics and intuition explain the reason why increasing government expenditure causes interest rate to rise? If the government wants to increase the amount of savings in the economy, how should it alter government spending? What effect will this action have on the interest rate in the economy?arrow_forwardThe following table shows income and consumption. Calculate: A- Saving (S), B- Marginal propensity to consume (MPC), C- Marginal propensity to save (MPS), D- Average propensity to consume (APC), E- Average propensity to save (APS). (show your calculations, write the answers to 2 decimal places) Y C S MPC MPS APC APS S = MPC = MPS = APC = APS = 300 360 410 400 600 510 800 250 1050 0.32arrow_forward
- Explain the difference between saving and investment as defined by a macroeconomist. Which of the following situations represent investment and which represent saving? Explain.a. Your family takes out a mortgage and buys a new house.You use your $200 paycheck to buy stock in Africel.Your roommate earns $100 and deposits it in his account at a bank.You borrow $1,000 from a bank to buy a car to use in your pizza delivery business.The interest rate is 7 percent. Use the concept of present value to compare $200 to be received in 10 years and $300 to be received in 20 years.A company has an investment project that would cost $10 million today and yield a payoff of $15 million in 4 years.Should the firm undertake the project if the interest rate is 11 percent? 10 percent? 9 percent? 8 percent?Can you figure out the exact cutoff for the interest rate between profitability and nonprofitability?arrow_forwardWhat is the meaning of "animal spirits"? How do these relate to planned investment spending and to unplanned investment spending?arrow_forwardSuppose a government decides to pass a tax cut, while keeping the level of government spending the same. How can the government finance the tax cut? What is the impact of the tax cut on public saving? Will private saving be affected and, if so, how? If households save most of (but not all) the tax cut, how will this affect investment? How will this affect the equilibrium interest rate? and why?arrow_forward
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