Exploring Macroeconomics
8th Edition
ISBN: 9781544337722
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Question
Chapter 15, Problem 5P
To determine
To explain:
The change in autonomous consumption if there is an increase in real wealth and a positive future is expected.
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What is the consumption function? What is the marginal propensity to consume? What does an upward-sloping consumption function mean?
How would an increase in the interest rate affect consumption and investment function?
Explain the relationship between consumption and saving in the Keynesian model.
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- The life cycle model of consumption argues that people consume and save in different proportions as they age. Seniors tend to consume more than save as their lives adjust to the realities of old age. Assuming the hypothesis is true, how would the aging of the very large baby boomer generation affect consumption and income?arrow_forwardWhat are the various factors which influence propensity to consumearrow_forwardWhy is investment spending unstable?arrow_forward
- Assume that the level of autonomous consumption in an economy equals 600, the level of planned investment = 500. Calculate the marginal propensity to consume, if the level of income equals 3,200? Provide answer to one decimal point.arrow_forwardWhat happens in the simple Keynesian model if households expect lower income in the future and decide to save more today? Adjust the graph and answer the question. Assume that investment varies directly with aggregate income. Aggregate expenditure (in billions of dollars) 10 9 8 7 5 4 3 2 1 0 0 1 2 3 4 5 6 7 Aggregate income (in billions of dollars) 8 9 AE = AI C+1 10arrow_forwardConsider an economy described by the following:Autonomous consumption ( a ) = 100Autonomous Investment = 100Marginal propensity to consume = 0.75 2. What is the consumption function for this economy?arrow_forward
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