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Chapter 12: Q. 1 (page 274)

How could toughened federal regulations of businesses during the current decade have inhibited a rightward shift in the imvestment function?

Short Answer

Expert verified

Changes in real disposable income produced movement along the consumption function, while shifts in the consumption function were induced by changes in household net worth.

Step by step solution

01

Introduction

The recovery of household expenditure on services has always been slower than for the recovery of household expenditure on tangible commodities. During the recovery following the conclusion of the $2007 - 2009$ depression, nonetheless, this disparity was substantially more pronounced.

02

Conclusion

Simultaneous movement along and shifts in the consumption function account for observed changes in projected aggregate consumption spending.

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Most popular questions from this chapter

Consider the table below when answering the following questions. For this economy, the marginal propensity to consume is constant at all levels of real $G D P$ , and investment spending is autonomous. Equilibrium real $G D P$ is equal to $\(8, 000$ . There is no government.

a. Complete the table. What is the marginal propensity to consume? What is the marginal propensity to save?

b. Draw a graph of the consumption function. Then add the investment function to obtain $C + I$ .

c. Under the graph of $C + I$ , draw another graph showing the saving and investment curves. Does the $C + I$ curve cross the $45$ -degree reference line in the upper graph at the same level of real $G D P$ where the saving and investment curves cross in the lower graph, at the equilibrium real $G D P$ of $\) 8, 000$ ? (If not, redraw your graphs.)

d. What is the average propensity to save at equilibrium real $G D P$ ?

e. If autonomous consumption were to rise by $$ 100$ , what would happen to equilibrium real $G D P$ ?

Calculate the multiplier for the following cases.

a. $M P S = 0.25$

b. $MPC = \frac{5}{6}$

c. $MPS = 0.125$

d. $MPC = \frac{6}{7}$

At an initial point on the aggregate demand carve, the price level is $100$ , and real GDP is $\(18$ trillion. After the price level rises to $110$ , however, there is an upward movement along the aggregate demand curve, and real GDP declines to $Sl 4$ trillion. If total planned spending declined by $\) 200$ billion in response to the increase in the price level, what is the marginal propensity to consume in this economy?

Take a look at Table $12 - 2$ and consider the changes in planned real consumption and saving associated with an increase in real GDP from $\(14.0$ trillion to $\) 15.0$ trillion to calculate the marginal propensity to consume.

Consider Figure 12-7, which applies to an economy in which the marginal propensity to consume is 0.8. Why does a \(0.1 trillion increase in planned real investment spending cause the aggregate demand curve to shift rightward by exactly \)0.5 trillion at the initial equilibrium price level of 110?

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