(a)
To explain:
Whether an increase in the interest rate will cause decrease in consumption.
Answer to Problem 1P
The increase in interest rate will decrease the consumption power in the economy.
Explanation of Solution
An increase in the interest rate increases the monthly payments made to buy automobiles, furniture as the consumer has to pay high instalment for goods bought on credit. As the disposable income of an individual remains the same and the interest rate is high, it leads to reduction in the consumption of goods and services.
Consumption:
It refers to the goods and services that are consumed by the people in an economy.
Interest rate:
It is the rate at which the principal amount is charged for a specific time period. An amount is charged at this rate from the lender for the use of assets.
(b)
To explain:
Whether an increase in the value of stock market portfolio will cause decrease in consumption.
Answer to Problem 1P
An increase in the value of the stock market of the portfolio, will increase the consumption.
Explanation of Solution
The change in the consumption is shown below:
In the above figure,x-axis represents disposable income while the y-axis represents the consumption expenditure. The larger the amount of real wealth (including stock portfolio, property) larger will be the consumption power.
Consumption:
It refers to the goods and services that are consumed by people in the economy.
Stock market portfolio:
It refers to the numberof financial assets that is kept by an investor in the form of bonds, commodities, and mutual funds.
(c)
To explain:
Whether a decrease in disposable income will cause decrease in consumption.
Answer to Problem 1P
The reduction in disposable income will decrease the consumption.
Explanation of Solution
The decrease in disposable income will lead to decrease in consumption, as it is the remaining amount after filling income tax that can be used by an individual for consuming goods and services. If the disposable income decreases, it will have a direct impact on the consumption power of an individual.
Consumption:
It refers to the goods and services that are consumed by people in the economy.
Disposable income:
It refers to that amount of income which is available in the household for savings as well as spending after income taxes.
(d)
To explain:
Whether an increase in income taxes will cause decrease in consumption.
Answer to Problem 1P
An increase in income taxes will decrease consumption.
Explanation of Solution
An increase in income taxes will decrease the amount of income left for consumption. As less amount is left with an individual, it will decrease the spending.
Consumption:
It refers to the goods and services that are consumed by people in the economy.
Income Tax:
It refers to the tax levied by the government of a country on an individual's business. It acts as a source of revenue for the government. This amount is used in providing facilities to the citizens of the country.
(e)
To explain:
Whether deflation will cause decrease in consumption.
Answer to Problem 1P
The deflation will cause an increase in consumption.
Explanation of Solution
The disposable income of a household remains the same but due to deflation, it will increase the value of the currency, which will, in turn, lead to an increase in the
Consumption:
It refers to the goods and services that are consumed by people in the economy.
Deflation:
It refers to the fall in the prices of goods and services in an economy due to fall in inflation. The deflation leads to an increase in the purchasing power of the currency.
Want to see more full solutions like this?
- Test Preparation QUESTION 2 [20] 2.1 Body Mass Index (BMI) is a summary measure of relative health. It is calculated by dividing an individual's weight (in kilograms) by the square of their height (in meters). A small sample was drawn from the population of UWC students to determine the effect of exercise on BMI score. Given the following table, find the constant and slope parameters of the sample regression function of BMI = f(Weekly exercise hours). Interpret the two estimated parameter values. X (Weekly exercise hours) Y (Body-Mass index) QUESTION 3 2 4 6 8 10 12 41 38 33 27 23 19 Derek investigates the relationship between the days (per year) absent from work (ABSENT) and the number of years taken for the worker to be promoted (PROMOTION). He interviewed a sample of 22 employees in Cape Town to obtain information on ABSENT (X) and PROMOTION (Y), and derived the following: ΣΧ ΣΥ 341 ΣΧΥ 176 ΣΧ 1187 1012 3.1 By using the OLS method, prove that the constant and slope parameters of the…arrow_forwardQUESTION 2 2.1 [30] Mariana, a researcher at the World Health Organisation (WHO), collects information on weekly study hours (HOURS) and blood pressure level when writing a test (BLOOD) from a sample of university students across the country, before running the regression BLOOD = f(STUDY). She collects data from 5 students as listed below: X (STUDY) 2 Y (BLOOD) 4 6 8 10 141 138 133 127 123 2.1.1 By using the OLS method and the information above derive the values for parameters B1 and B2. 2.1.2 Derive the RSS (sum of squares for the residuals). 2.1.3 Hence, calculate ô 2.2 2.3 (6) (3) Further, she replicates her study and collects data from 122 students from a rival university. She derives the residuals followed by computing skewness (S) equals -1.25 and kurtosis (K) equals 8.25 for the rival university data. Conduct the Jacque-Bera test of normality at a = 0.05. (5) Upon tasked with deriving estimates of ẞ1, B2, 82 and the standard errors (SE) of ẞ1 and B₂ for the replicated data.…arrow_forwardIf you were put in charge of ensuring that the mining industry in canada becomes more sustainable over the course of the next decade (2025-2035), how would you approach this? Come up with (at least) one resolution for each of the 4 major types of conflict: social, environmental, economic, and politicalarrow_forward
- How is the mining industry related to other Canadian labour industries? Choose one other industry, (I chose Forestry)and describe how it is related to the mining industry. How do the two industries work together? Do they ever conflict, or do they work well together?arrow_forwardWhat is the primary, secondary, tertiary, and quaternary levels of mining in Canada For each level, describe what types of careers are the most common, and describe what stage your industry’s main resource is in during that stagearrow_forwardHow does the mining industry in canada contribute to the Canadian economy? Describe why your industry is so important to the Canadian economy What would happen if your industry disappeared, or suffered significant layoffs?arrow_forward
- What is already being done to make mining in canada more sustainable? What efforts are being made in order to make mining more sustainable?arrow_forwardWhat are the environmental challenges the canadian mining industry face? Discuss current challenges that mining faces with regard to the environmentarrow_forwardWhat sustainability efforts have been put forth in the mining industry in canada Are your industry’s resources renewable or non-renewable? How do you know? Describe your industry’s reclamation processarrow_forward
- How does oligopolies practice non-price competition in South Africa?arrow_forwardWhat are the advantages and disadvantages of oligopolies on the consumers, businesses and the economy as a whole?arrow_forward1. After the reopening of borders with mainland China following the COVID-19 lockdown, residents living near the border now have the option to shop for food on either side. In Hong Kong, the cost of food is at its listed price, while across the border in mainland China, the price is only half that of Hong Kong's. A recent report indicates a decline in food sales in Hong Kong post-reopening. ** Diagrams need not be to scale; Focus on accurately representing the relevant concepts and relationships rather than the exact proportions. (a) Using a diagram, explain why Hong Kong's food sales might have dropped after the border reopening. Assume that consumers are indifferent between purchasing food in Hong Kong or mainland China, and therefore, their indifference curves have a slope of one like below. Additionally, consider that there are no transport costs and the daily food budget for consumers is identical whether they shop in Hong Kong or mainland China. I 3. 14 (b) In response to the…arrow_forward
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning