Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
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Question
Chapter 3, Problem 9QAP
a.
To determine
To explain: The effects of a fall in consumer confidence on output level.
b.
To determine
To explain: The impact of the decrease in output on consumption, investment, private savings, and
c.
To determine
To explain: The impact of an increase in consumption expenditure on output, investment, private savings, and consumption.
d.
To determine
To comment: on the logic of the given statement.
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Students have asked these similar questions
Suppose that c= a+by, where c= consumption, a = consumption at zero income, b = the slope of the
consumption from function, and y = income,
a) are c and y positively related or are they negatively related?
b) If graphed, would the curve of this equation slope upward or downward?
c) What is the value of c if a = 10, b = 50 and y = 200?
d) what is the value of y if c = 100, a = 10 and b = 25?
Use the graphs to illustrate the effect of a decrease in consumer income expectations on the consumption (C) function and the
savings (S) function.
Real consumption
500
450
400
350
300
250
200
150
100
50
0
0
50
C = DI
с
100 150 200 250 300 350 400 450 500
Real disposable income (DI)
Real savings
500
450
400
350
300
250
200
150
100
50
0
-50
-100
-150
0
50
100 150 200 250 300 350
Real disposable income (DI)
S
400 450 500
4) Suppose the economy is closed and is characterized by the following behavioral equations:
a.
b.
C.
d.
C=C₂+GY₂
Y₂ = Y-T
1=b₂ + b₂Y
Government spending and taxes are constant. Suppose that consumers decide to
consume less (and therefore to save more) for any given amount of disposable income.
Specifically assume that consumer confidence () falls. What will happen to output?
As a result of the effect on output you determined in part (a), what will happen to
investment? What will happen to public saving? What will happen to private saving?
Explain. What is the effect on consumption?
Suppose that consumers had decided to increase consumption expenditure, so that
Co had increased. What would have been the effect on output, investment, and private
saving in this case? Explain. What would have been the effect on consumption?
Comment on the following logic: "when output is too low, what is needed is an
increase in demand for goods and services. Investment is one component of demand, and…
Chapter 3 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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