Exam_3_Study_Guide - ECON 201 (SP2010) Exam 3 Study Guide...

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ECON 201 (SP2010) Exam 3 Study Guide – GOOD LUCK!!!! - During a period of Demand-pull inflation, what Monetary Policy or Fiscal Policy should be applied and how would that policy affect the level of investment and aggregate demand? - How does a reduction/increase in taxes affect consumption and aggregate demand? o A in taxes creates and in aggregate demand - The most significant determinant of consumer spending/saving o Disposable income - How consumption and saving are related to disposable income… o Consumption is directly related to disposable income (45® reference line) - Saving vs. Dissaving o Savings = consumption line below reference line o Dissaving = consumption line above reference line “dissaving” occurs at low levels of disposable income, where consumption exceeds income and households must borrow or use up some of their wealth. - Graphically, given the consumption schedule, how do we graph the saving schedule? o 45® line – the consumption schedule = savings schedule - A shift of the consumption schedule (up/down) might be caused by… o caused by non-income determinants of consumption - Taxes (increase/decrease) – affects consumption and saving schedules how
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Exam_3_Study_Guide - ECON 201 (SP2010) Exam 3 Study Guide...

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