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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Question
Chapter 26, Problem 2.2P
Subpart (a):
To determine
The changes in
Subpart (b):
To determine
The changes in the planned aggregate expenditure.
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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.
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?
Explain how each of the following will affect the consumption and saving schedules (as they
relate to GDP) or the investment schedule, other things equal:
a) A large increase in the value of real estate, including private houses.
b) A decline in the real interest rate.
c) An increase in the rate of population growth.
d) An increase in the Federal personal income tax.
Chapter 26 Solutions
Principles of Economics (12th Edition)
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