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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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- Spring '09