Quiz3_Answers - PRINCIPLES OF MACROECONOMICS QUIZ#3...

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PRINCIPLES OF MACROECONOMICS QUIZ #3 – COVERING CHAPTERS 8 AND 9 ANSWERS 1. What is the relationship between consumption and the following economic variables: household income, wealth, household's expectations about the future, and interest rates?
2. Draw a graph of the consumption function and explain what the vertical intercept means and the slope. Make sure to label both axes.
3. Explain any differences between actual investment and planned investment. Also, is it possible for actual investment to be greater than planned investment? If so, explain.
given period. Actual investment, therefore, also takes into account any unplanned changes in inventories. Planned investment represents those additions to the capital stock that are planned by firms. Yes, it is possible for actual investment to exceed planned investment. For this to occur, production must exceed sales. In this case, firms experience an unplanned increase in inventories that causes actual investment to exceed planned investment.

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