Study Questions for Lecture 8

Study Questions for Lecture 8 - Decrease it? Briefly...

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Questions for Lecture 8 Questions from Lecture 8. 1. What are the four components of total expenditure? 2. What is disposable income? How do we presume consumption changes with the current value of disposable income? 3. What is the marginal propensity to consumer? 4. Suppose DI = (1- τ )Y, where τ is the tax rate and Y is real GDP. Clearly then DI is disposable income. Now suppose consumption is related to DI by the following equation: C = a + b DI. Derive an expression for C as a function of Y. 5. Draw a graph of consumption as a function of total output, Y, and show how changes in the intercept (of the equation you derived to answer question 4) affect the location of the curve. 6. Draw another graph and show how changes in the tax rate and marginal propensity to consume affect the location of the consumption function. 7. What things can increase the intercept of the consumption function?
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Unformatted text preview: Decrease it? Briefly explain why each event affects consumption. 8. Explain how a decrease in interest rates affect investment spending. 9. What do we mean by animal spirits and how do they affect investment expenditure? 10. Although the lecture does not discuss how taxes affect investment, how do you think an increase in a tax on income earned from owning capital goods will affect investment spending? Explain the best that you can. 11. Why are we assuming the net exports and government expenditures are constant? 12. What is our expression for total expenditures? 13. Assume C = a + b(1-t) Y, I = I c r, G = G , X - M = X M . Now derive the expression for total spending, that is the expression for E . 14. If you have not already done so, rewrite your expression for E as E = A c r + b(1- )Y. What sorts of things can increase A ? Decrease?...
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