Problem 1
Precisely how do the MPC and the APC differ? How does the MPC differ from the MPS? Why must the sum of the MPC and the MPS equal 1? LO10.1
Problem 2
Why does a downshift of the consumption schedule typically involve an equal upshift of the saving schedule? What is the exception to this relationship?
Problem 4
In what direction will each of the following occurrences shift the investment demand curve, other things equal? a. An increase in unused production capacity occurs. b. Business taxes decline. c. The costs of acquiring equipment fall. d. Widespread pessimism arises about future business conditions and sales revenues. e. A major new technological breakthrough creates prospects for a wide range of profitable new products.
Problem 5
How is it possible for investment spending to increase even in a period in which the real interest rate rises?
Problem 7
Is the relationship between changes in spending and changes in real GDP in the multiplier effect a direct (positive) relationship or is it an inverse (negative) relationship? How does the size of the multiplier relate to the size of the MPC? The MPS? What is the logic of the multiplier-MPC relationship?
