Matthew_McCoy_Week_5_Chapter_27_Assignment - When someone...

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Matthew McCoy ECON201 Week 5 Chapter 27 Assignment July 9, 2011 Professor John Volpe 1. What are the variables (the items measured on the axes) in a graph of the (a) consumption schedule and (b) saving schedule? Are the variables inversely (negatively) related or are they directly (positively) related? What is the fundamental reason that the levels of consumption and saving in the United States are each higher today than they were a decade ago? The variables in the consumption schedule are C (consumption) and DI (disposable income). The variables in the savings schedule are S (saving) and DI (disposable income). Other things equal, the variables are directly related. Consumption and saving in the United States are higher today than they were a decade ago primarily because income is greater. Both GDP and population have also increased over the past decade. 4. Why does a downshift of the consumption schedule typically involve an equal upshift of the savings schedule? What is the exception to this relationship?
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Unformatted text preview: When someone consumes more, they are saving less. If someone consumes less, they are consuming more. This being so, when your consumption schedule shifts upward, your saving schedule shifts downward by an equal amount, and vice versa. The exception is a change in personal taxes. When these change, your disposable income changes, and, therefore, your consumption and saving both change in the same direction and opposite to the change in taxes. 6. In what direction will each of the following occurrences shift the investment demand curve, other things equal? a. Left b. Right c. Right d. Left e. Right 10. Why is the actual multiplier in the U.S. economy less than the multiplier in this chapter’s example? The actual multiplier is smaller because it includes other leakages from the spending and income cycle besides just saving. Imports and taxes reduce the flow of money back into spending on domestically produced output, reducing the multiplier effect....
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Matthew_McCoy_Week_5_Chapter_27_Assignment - When someone...

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