05 Consumption, Saving, and Investment, Part 1-1

05 Consumption, Saving, and Investment, Part 1-1 - Agenda...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
1 5-1 Consumption, Saving, and Investment, Part 1 5-2 Agenda •Con sum p t ion and S av ing •D e t e rm in an t s o f N a t ion a l S av
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 5-5 Consumption and Saving •Con sum p t ion and s av ing d e c i s ion s : ¾ There is a trade-off between current and future consumption: •The p r ice o f 1 un i t o f cu r ren t con sump t ion i s 1 + r units of future consumption, where r is the real interest rate. Consumption-smoothing motive : the desire to have a relatively even pattern of consumption over time. 5-6 Consumption and Saving •E f f
Background image of page 2
3 5-9 Consumption and Saving •E f f e c t o f ch ang e s in th e real interest rate : ¾ A higher real interest rate has 2 effects. The Substitution effect on saving is positive because a higher rate of return is a greater reward for saving. The Income effect on saving is mixed: –I t i s nega t ive for a net saver because it takes less saving to achieve a given amount in the future (target saving). –I t i s po s i t ive for a net borrower because a higher real interest
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 11

05 Consumption, Saving, and Investment, Part 1-1 - Agenda...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online