Economiscs Quiz 3 - 1 Tanay Surana ECON 2301.001 Economics...

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Tanay Surana ECON 2301.001 03/25/2016 Economics Quiz 3 A1) Consumption is positively related to wealth, household income and household expectations about the future. It is negatively related to interest rates. A2) Consumption function crosses the vertical axis at a positive value implies that consumption can never be zero even though income zero. In these situations, people either borrow or use their saving for basic consumption to survive. The slope represents fraction of each additional dollar of income that household choose to consume. A3) Investments that are taken place during a given period are termed as Actual Investments. Unplanned changes in the inventory are part of the Actual Investments. Planned investments are additions to the capital stock planned by the firm. Yes, Actual investments can exceed Planned investments in situations where production exceeds sales. This way firm experiences more unplanned increase in inventories and causes actual investment to exceed Planned investments.

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