Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 23, Problem 5.2P
To determine
Effect of increase in savings of the households.
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Graphically illustrate the aggregate consumption and saving functions. Explain
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Please explain how a rise in the household saving rate can cause a fall in GDP?
Chapter 23 Solutions
Principles of Economics (12th Edition)
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- Show on a graph of the market for saving and investment the effect of the following. (The graph is a basic savings and investment graph). In an effort to improve fiscal conditions, policymakers raise taxes. This results in lower disposable income. Real interest rate (percent per year) 10. 8 6 4 2 SLF 0 1.2 1.4 1.6 DLF 2.0 2.2 1.8 Loanable funds (trillions of 2009 dollars) The savings function [Select] The investment function [Select] The real interest rate [Select] The level of savings and investment [Select]arrow_forwardGraphically illustrate the aggregate consumption and saving functions. Explain these functions with at least 200 words. You may give examples.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
- Calculate the following Consumption = ? Suppose GDP is $8 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion.arrow_forwardIf there is an increase in the personal income tax rate, and people do not receive a pay increase, then disposable income will... decrease or increase Therefore, we can expect consumption spending to... decrease or increase and private saving to..... increase or decrease .arrow_forwardSuppose that disposable income, consumption, and saving in some country are $400 billion, $350 billion, and $50 billion, respectively. Next, assume that disposable income increases by $40 billion, consumption rises by $28 billion, and saving goes up by $12 billion. Instructions: In part a, round your answers to 2 decimal places. In part b, round your answers to 3 decimal places. a. What is the economy's MPC? MPC = What is its MPS? MPS = b. What was the APC before the increase in disposable income? APC before = What was the APC after the increase? APC after =arrow_forward
- Which of the following correctly describes how a decrease in the price level affects consumption spending? Select one: a. A decrease in the price level raises real wealth, which causes consumption to increase. b. A decrease in the price level decreases the amount of money a household needs to buy goods and so raises the interest rate, which causes consumption to increase. c. A decrease in the price level increases the amount of money a household needs to buy goods and so raises the interest rate, which causes consumption to increase. d. A decrease in the price level lowers real wealth, which causes consumption to decrease.arrow_forwardUse the following table. which represents the aggregate consumption function? Table: Individual and Aggregate Consumption Functions Current Consumer Spending Andy Fred Mark Disposable Income SO 1,000 $150 $100 $200 950 800 1,100 C = 450 + 0.7YD C = 150 + 0.9YD C= 250 + 0.8YD C = 450 + 0.8YDarrow_forwardAggregate consumption varies less than aggregate investment. Briefly explain why this is true assuming that consumption and investment decisions are taken by rational and forward-looking agents.arrow_forward
- Graphically illustrate (draw) and explain the effect of a sustained increase in savings on the growth of output (Provide explanations)arrow_forwardStep 2: The Effect of Saving on Total Expenditures The following table shows data for the economy before the decrease in saving. Suppose that the decrease in saving causes consumption to rise from $280 million to $320 million. Assume Say's law holds in this economy. Fill in the data for the economy after the decrease in saving. Before Saving Decrease $280 million $200 million $250 million $500 million $300 million Consumption (C) Investment (I) Government Purchases (G) Exports (EX) Imports (IM) As a result of the decrease in saving, total expenditures will After Saving Decrease $320 million million million $500 million $300 millionarrow_forwardPlease answer ASAParrow_forward
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