Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
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?
Suppose the savings rate suddenly decreases. We can assume that real growth will _____ in the short-run and the steady-state of capital will _____
increase or decrease?
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_forwardChina currently (2016) has a household saving rate of about 36 %. It has never been below 27 % in the last 30 years. What role do you think this high saving rate has for China’s economic success?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_forward
- Policymakers 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_forwardWhat is the “urban push” and in what ways might it affect the relationship between urbanization and economic growth?arrow_forwardHow does the price of capital tend to change during an economic boom? During a recession?arrow_forward
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