Table_Ch4 - Ch. 4 Determinants of Desired National Saving...

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Unformatted text preview: Ch. 4 Determinants of Desired National Saving (text p125) Slide p15 An increase in Current output, Y Causes desired national saving to Rise Reason Part of the extra income is saved to provide for future consumption. Anticipation of future income raises current desired consumption, lowering current desired saving. Some of the extra wealth is consumed, which reduces saving for given income. An increased return makes saving more attractive, probably outweighing the fact that less must be saved to reach a specific savings target Higher government purchases directly lower desired national saving. Saving doesn't change if consumer take into account an offsetting future tax cut; saving rises if consumers don't' take into account a future tax cut and thus reduce current consumption. Expected future output Fall Wealth Fall Expected real interest rate, r Probably rise Government purchases, G Taxes, T Fall Remain unchanged or rise Determinants of Desired Investment (text p137) slide p23 An increase in Real interest rate, r Effective tax rate, (tau) Causes desired investment to Fall Fall Reason The user cost increase, which reduces desired capital stock. The taxadjusted user cost increases, which reduces desired capital stock. Expected future MPK Rise What things shift the savings curve? Slide p29 An increase in Current output, Y Causes desired national saving to Rise Reason Part of the extra income is saved to provide for future consumption. Anticipation of future income raises current desired consumption, lowering current desired saving. Some of the extra wealth is consumed, which reduces saving for given income. Higher government purchases directly lower desired national saving. Saving doesn't change if consumer take into account an offsetting future tax cut; saving rises if consumers don't' take into account a future tax cut and thus reduce current consumption. Expected future output Fall Wealth Fall Government purchases, G Taxes, T Fall Remain unchanged or rise What things shift the investment curve? Slide p31 An increase in Effective tax rate, (tau) Causes desired investment to Fall Reason The taxadjusted user cost increases, which reduces desired capital stock. Expected future MPK Rise ...
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