EBK ECONOMICS TODAY
18th Edition
ISBN: 9780100663336
Author: Miller
Publisher: YUZU
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Chapter 12, Problem aFCT
To determine
To show:
The differences in the average propensity to save for higher-income group and lower-income group with brief explanation.
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- True or false? Explain why. "The marginal propensity to consume out of transitory income is greater than the marginal propensity to consume out of permanent income."arrow_forwardThe multiplier process can occur when a decrease in investment spending...arrow_forwardIf consumers save 21 cents out of every dollar received, the Multiple Choice marginal propensity to save is 0.21. multiplier is 0.21. marginal propensity to consume is 0.21. marginal propensity to save is 0.79.arrow_forward
- True or false? Why?"The marginal propensity to consume out of transitory income is greater than the marginal propensity to consume out of permanent income."arrow_forwardCompare the ultimate effects of an increase in interest rates in an economy with a low marginal propensity to consume with those in an economy that has a larger marginal propensity to consume? Explainarrow_forwardIdentify how planned investment will change in each scenario. In an effort to reduce constant budget deficits, Congress announces plans to increase the corporate income tax rate. Due to the Congress, planned investment will increase, decrease, or stay the same? A major recession has reduced consumption spending, which has hurt profit levels for Aston-Benz, a high-end car manufacturer. Due to the recession, planned investment will increase, decrease, or stay the same?arrow_forward
- Which of the following effects results from the change in the interest rate created by an increase in government spending? a. the investment accelerator and crowding out b. the investment accelerator but not crowding out c. crowding out but not the investment accelerator d. neither crowding out nor the investment acceleratorarrow_forwardExplain and diagrammatically represent the shift in the DLF curve as a result of each of the following: -- a rise in autonomous investment -- a rise in the size of the budget deficit -- a decline in autonomous investment 25. What is autonomous investment?arrow_forwardAssume i=0%, beta=1. Consumer has income of 80 in year 1, 100 in year 2. Now suppose gov't gives consumers a free check of 10 in year 1. Suppose consumers are naive (they don't anticipate the free check is financed by borrowing from China, which needs to be paid back through more tax in period 2). Consumer actually consumes ____ in year 2. Hint: when consumers are naive, they will believe they have 80+10=90 income in period 1, and 100 income in period 2. Hint 2: when year 2 comes, gov't needs to pay back the debt.arrow_forward
- Calculate the marginal propensity to save when total saving increases from $200 billion to $300 billion as a result of increase in income from $900 to dollar $1200 billion.arrow_forwardAssume an economy in which:(i) there are no exports and no imports,(ii) investors always want to spend $200 billion, or I = 200,(iii) government spends $500 billion and tax revenue is $200 billion,(iv) consumption is a linear function of disposable income, C=100+0.8YdWhat is the marginal propensity to save (MPS)?arrow_forwardAccording to the standard textbook Keynesian analysis, which is greater: the tax multiplier or the government spending multiplier? Explain the reasoning behind this relationship.arrow_forward
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