The following graphs show an economy's initial position at point A along its consumption function (C). Suppose there is an increase in the interest rate households are paid on money they save. On the graph, shift either the consumption curve or the initial point on the consumption function to show the impact of an increase in the interest rate. (Note: In the scenario where the curve shifts, only shift the curve and do not adjust the position of the point.) ? REAL CONSUMPTION (Billions of dollars) A
The following graphs show an economy's initial position at point A along its consumption function (C). Suppose there is an increase in the interest rate households are paid on money they save. On the graph, shift either the consumption curve or the initial point on the consumption function to show the impact of an increase in the interest rate. (Note: In the scenario where the curve shifts, only shift the curve and do not adjust the position of the point.) ? REAL CONSUMPTION (Billions of dollars) A
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Just for information the point can move left and right and the line can move up and down. When line moves up the point can move to the left only and when the line moves down, the point can move to the right only. I hope that makes sense to you.
Transcribed Image Text:The text explains an economic scenario regarding the impact of increased interest rates on an economy's consumption function.
**Text:**
The following graphs show an economy's initial position at point A along its consumption function (\( C \)).
Suppose there is an increase in the interest rate households are paid on money they save.
*On the graph, shift either the consumption curve or the initial point on the consumption function to show the impact of an increase in the interest rate.*
*(Note: In the scenario where the curve shifts, only shift the curve and do not adjust the position of the point.)*
**Graph Description:**
- **Axes:** The graph has two axes. The vertical axis represents "REAL CONSUMPTION (Billions of dollars)," and the horizontal axis represents "REAL DISPOSABLE INCOME (Billions of dollars)."
- **Consumption Curve:**
- The initial consumption curve is labeled \( C \).
- Point A is indicated on the consumption curve, representing the economy's initial position.
- The graph has controls suggesting adjustments to either the position of point A or the consumption curve \( C \) to reflect changes due to increased interest rates.
Transcribed Image Text:**Scenario: Impact of a Decrease in Disposable Income**
Now suppose that disposable income suddenly and unexpectedly decreases.
**Instructions:** On the graph below, shift either the consumption curve or the initial point on the consumption function to show the impact of a fall in disposable income. *(Note: In the scenario where the curve shifts, only shift the curve and do not adjust the position of the point.)*
**Graph Description:**
- **Axes:**
- The horizontal axis represents "REAL DISPOSABLE INCOME (Billions of dollars)".
- The vertical axis represents "REAL CONSUMPTION (Billions of dollars)".
- **Consumption Curve:**
- An upward-sloping blue consumption curve is shown, labeled with the letter "C".
- **Point on Curve:**
- There is a point marked on the consumption curve.
- **Key/Legend:**
- A legend is present showing a circle labeled "C" and a grey circle labeled "A".
- **Interactive Element:**
- There is a horizontal slider with a circle that can be moved, presumably to adjust the curve or point as per the instruction.
The task is to visually represent how a decrease in disposable income affects real consumption by adjusting the curve or the point on the graph.
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Consumption Function:
The consumption function is a bend that conveys the relationship between consumption and disposable income. It is also called the propensity to consume function.
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