Quiz 3 - Sam Fonseca 10/27/2010 Macroeconomics Quiz 3 1. As...

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Sam Fonseca 10/27/2010 Macroeconomics Quiz 3 1. As household income increases, household consumption also increases, but by less. Consumption increases as wealth increases. Consumption increases when interest rates decrease. Consumption increases if household's expectations about the future are optimistic, and decreases if they are pessimistic. 2. 3. Planned investment is the investment that firms plan to make, while actual investment is the amount of investment that actually takes place. Investment involves the investment in plants and equipment as well as the change in inventory. If a firm plans on spending $1 million, and selling $1 million worth of products, and only sells $.5 million, their planned investment was only $1 million, but their actual investment is $1.5 million since they have $.5 million worth of product left over. They differ because, while firms can estimate the change in inventory, it is not possible to plan for the exact amount. 4. a) Equilibrium income (Y) = 2000 b) Equilibrium savings = 100, Equilibrium Consumption = 1900 c) Equilibrium income (Y) = 2400, Multiplier = 4 d) Yes, since they are both equilibrium points S = I, therefore ΔS=ΔI. When planned investment increases, output increases, so people consume more, therefore C changes when I changes. 5.
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This note was uploaded on 02/12/2012 for the course ECON 2301 taught by Professor Mcelroy during the Fall '09 term at University of Texas at Dallas, Richardson.

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Quiz 3 - Sam Fonseca 10/27/2010 Macroeconomics Quiz 3 1. As...

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