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Exam 10: Basic Macroeconomic Relationships

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Question 1

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Describe the relationship between the Great Recession of 2008-2009 and the Paradox of Thrift.

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The Great Recession of 2008-2009 altered...

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Question 2

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What are the marginal propensity to consume (MPC)and marginal propensity to save (MPS)? How are the two concepts related? How are the two concepts related to the consumption and saving functions?

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The marginal propensity to consume is th...

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Question 3

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Describe the relationship between the Great Recession of 2008-2009 and the Investment Riddle.

State four factors that explain why investment spending tends to be unstable.

What is the effect of increase in wealth on the consumption and saving schedules?

What are the relationships between the multiplier and the marginal propensities to consume and save?

Define the consumption and saving schedules.

Suppose that the linear equation for consumption in a hypothetical economy is C = 50 + 0.9 Y.Also suppose that income (Y)is $400.Determine the following: (a)MPC; (b)MPS; (c)level of consumption; (d)APC; (e)APS.

Use the following data to answer the questions.

Complete the following table assuming that (a)MPS = 1/3, (b)there is no government and all saving is personal saving.

Use the graphs below to answer the following questions:

Explain the difference between a movement along the consumption schedule and a shift in the consumption schedule.

Complete the accompanying table.

Most economists regard investment demand as being less stable than the income-consumption relationship.Looking at the determinants of the two relationships,support this contention.

Explain the economic impact of an increase in the multiplier.

List four factors that could shift the current consumption schedule.

List six events that could cause a shift in the investment demand curve to the right.

What are two key facts that serve as the rationale for the multiplier effect?

Complete the following table assuming that (a)MPS = 1/5, (b)there is no government and all saving is personal saving.

Describe the relationship between the size of the MPC and the multiplier.How does it compare to the relationship between the size of the MPS and the multiplier?