Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 6, Problem 4DQ
To determine
Theconsumption and saving.
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Why is there a trade-off between the amount of consumption that people can enjoy today and the amount of consumption that they can enjoy in the future? Why can’t people enjoy more of both? How does saving relate to investment and thus to economic growth? What role do banks and other fifinancial institutions play in aiding the growth process?
How does a decrease in the tax rate on income earned on saving affect saving, investment, the interest rate, and economic growth?
How do interest rates affect economic growth? Which federal agency influences interest rates?
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- Suppose the people in a certain economy decide to stop saving and instead use all their income for consumption. They do nothing to add to their stock of human or physical capital. Discuss the prospects for growth of such an economy.arrow_forwardWhen one person saves more, that person’s wealth is increased, meaning that he or she can consume more in the future. But when everyone saves more, everyone’s income falls, meaning that everyone must consume less today. Explain this seeming contradiction.arrow_forwardwhat explains the long-term differences in growth and thus present-day differences in levels of real income?arrow_forward
- Why might it be necessary to reduce consumer spending in order to attain fastereconomic growth? Would it be worth the sacrifice?arrow_forwardIn what role do you think does savings and investments play in the economy? Explain your answer. In what way does saving and investment affect economic growth and development? Give an example and justify your answer.arrow_forwardPolicymakers trying to promote economic growth must confront the issue of what kinds of capital the economy needs most. If policymakers decide to rely on the marketplace to allocate the pool of saving to alternative types of investment, Those industries with the kinds of capital that yield the lowest marginal product will borrow the most. Those industries with the kinds of capital that yield the highest marginal product will borrow the least. All industries will have incentives to borrow more. Those industries with the kinds of capital that yield the highest marginal product will borrow the most.arrow_forward
- What is the “urban push” and in what ways might it affect the relationship between urbanization and economic growth?arrow_forwardIf there is a fall in the real interest rate, how does the quantity of loanable funds supplied change?arrow_forward3.3 Explain and show graphically how an increase in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds. 3.4 Explain and show graphically how an increase in expected profits from firm investment projects affects the equilibrium interest rate and the equilibrium quantity of loanable funds. 3.5 Explain and show graphically how an increase in government spending (i.e. budget deficit) affects the equilibrium interest rate in the market for loanable funds.arrow_forward
- A) If you are given a choice to live in a country with high level of GDP and low growth rate or to live in a low level of GDP and a high growth rate, which option would you choose and why? B) Assume a hypothetical society that decides to reduce consumption (production of consumption goods) and increase investment (production of capital goods). 1) How would this change affect economic growth? 2) What groups in society would benefit from this change? What groups might be hurt?arrow_forwardHow come higher saving leads to more rapid growth?arrow_forwardExplain the following as effects of low policy rates to the growth of an economy: 1. It can cause inflationary pressure 2. It might lead to a boost in economic growth 3. Investments are more desirable 4. There will be relatively low borrowing cost for government.arrow_forward
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