Chat with AIExam 10: A: Basic Macroeconomic Relationships
Use the following data to answer the questions. 
(a) Explain why this table is essentially an investment demand schedule.(b) If the interest rate was 8%, how much investment would be undertaken?
(c) Why is there an inverse relationship between the rate of interest and the amount of investment?
(a) Explain why this table is essentially an investment demand schedule.(b) If the interest rate was 8%, how much investment would be undertaken?
(c) Why is there an inverse relationship between the rate of interest and the amount of investment?
(34) 
Verified(a) The investment demand schedule gives the amount of investment that would be undertaken at various rates of interest.The rate of interest that an investor would be willing to pay for any amount of investment will not exceed its expected rate of net profit.Therefore, the expected rate of profit determines the interest rate (or price) that investors would be willing to pay for various amounts of investment and this is the definition of an investment demand schedule.
(b) Investment is $90 billion.
(c) The inverse relationship stems from the equality of the expected rate of profit with the interest rate at each level of investment as explained in part (a).There are fewer types of investment that yield a large expected net profit and more and more investments that will yield a lower rate of return.Therefore, at high rates of interest there is a smaller amount of investment that will be undertaken because fewer investments yield an expected return high enough to cover the high interest rate.As the rate declines, more and more investments will yield enough return to cover the lower rates of interest.
Define the consumption and saving schedules.
(35) VerifiedIn the aggregate expenditures model one focus is on the consumption schedule which is the relationship between the consumption part of aggregate expenditures and disposable income.Graphically this relationship is illustrated with consumption measured on the vertical axis and disposable income measured on the horizontal axis.If the two were equal, the relationship would follow a straight line along the 45-degree line.Historical data and the aggregate expenditures model suggest that it is a direct relationship, and that households spend a larger proportion of a small income than of a large disposable income.In other words, consumption as a proportion of income falls as disposable income increases.
Since saving is the difference between disposable income and consumption spending, the saving schedule also shows a direct relationship between saving and disposable income.Graphically, it is depicted with saving on the vertical axis and disposable income measured on the horizontal axis.At very low income levels, dissaving is believed to occur and saving increases proportionally as income rises.
Complete the accompanying table. 
(a) What is the break-even level of income? How is it possible for households to dissave at very low income levels?
(b) If the proportion of total income consumed decreases and the proportion saved increases as income rises, explain how the MPC and MPS can be constant at various levels of income.
(a) What is the break-even level of income? How is it possible for households to dissave at very low income levels?
(b) If the proportion of total income consumed decreases and the proportion saved increases as income rises, explain how the MPC and MPS can be constant at various levels of income. (39) Verifieda) The break-even level of income is 125 where saving equals zero.Households dissave by borrowing or by dipping into accumulated savings.
(b) The MPC and MPS represent the slopes of the consumption and savings schedules, respectively.The fact that MPC and MPS are constant means that the schedules will be straight-line graphs.However, the slope can be constant and still not be a constant proportion of income as represented on the horizontal axis.In fact, the only time the MPC and the APC would be the same would be along the 45-degree line where the slope is equal to 1 and the ratio of spending to income is equal to 1 at all levels.
Complete the following table assuming that (a) MPS = 1/3, (b) there is no government and all saving is personal saving. 
(36) 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?
(45) What are the relationships between the multiplier and the marginal propensities to consume and save?
(51) What is the effect of increase in wealth on the consumption and saving schedules?
(30) Complete the following table assuming that (a) MPS = 1/5, (b) there is no government and all saving is personal saving. 
(42) Describe the relationship between the Great Recession of 2008-2009 and the Paradox of Thrift.
(46) 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.
(36) 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?
(35) What are two key facts that serve as the rationale for the multiplier effect?
(35) State four factors that explain why investment spending tends to be unstable.
(37) List six events that could cause a shift in the investment demand curve to the right.
(37) Differentiate between the average propensity to consume and the marginal propensity to consume.
(38) Complete the accompanying table. 
Using the below graphs, show the consumption and saving schedules graphically. 
(b) Locate the break-even level of income.How is it possible for households to dissave at very low income levels?
(c) If the proportion of total income consumed decreases and the proportion saved increases as income rises, explain both verbally and graphically how the MPC and MPS can be constant at various levels of income.
Using the below graphs, show the consumption and saving schedules graphically. (b) Locate the break-even level of income.How is it possible for households to dissave at very low income levels?
(c) If the proportion of total income consumed decreases and the proportion saved increases as income rises, explain both verbally and graphically how the MPC and MPS can be constant at various levels of income. (35) Describe the relationship between the Great Recession of 2008-2009 and the Investment Riddle.
(44) Suppose a family's annual disposable income is $8,000 of which it saves $2,000.(a) What is their APC?
(b) If their income rises to $10,000 and they plan to save $2,800, what are their MPS and MPC?
(c) Did the family's APC rise or fall with their increase in income?
(41) 
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