Essay
a. Suppose a government education program succeeds in getting households to save more (you may interpret this as a downward shift in the consumption function). Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of the higher saving rate by households. Be sure to label:
i the axes
ii. the curves
iii. the initial equilibrium values
iv. the direction curves shift
v. the terminal equilibrium values
b. State in words what happens to
i. the real interest rate
ii. nafional saving
iii. investment
iv. consumption
v. output.
Correct Answer:
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a. 
b. i. real interest rate decreases
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Correct Answer:
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b. i. real interest rate decreases
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View Answer
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