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Chapter 12: Q. 2 (page 274)

How might recent increases in state and federal tax rates on incomes that businesses derive from capital investment have contributed to the investrment function's failure to rebound?

Short Answer

Expert verified

As the result, It will depends upon the state that increases or decreases.

Step by step solution

01

Introduction

The symbollc connection between consumption and disposable income is expressed by the consumption function. There is a self-contained element that is not reliant on money, and a reliant half that is. During the recent recession, a greater percentage of increasing income was spent on physical items rather than services. This was the upshot of a decrease in net worth.

02

Conclusion

The counterpart of MRS is the value of something like the spending multiplier. The MPS would have increased if individuals spent more on physical items and less on services. Perhaps because overall consumption growth was lower and saving growth was higher. In this case, MPS would have increased while the multiplier would have decreased.

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Most popular questions from this chapter

Explain the key determinants of consumption and saving in the Keynesian model

What does the theory of consumption spending predict should have happened to real saving during the particular three-month period that Price was considering? Explain briefly.

Take a look at Table 12-2 and consider the changes in planned real consumption and saving associated with an increase in real GDP from \(14.0 trillion to \)15.0 trillion to calculate the marginal propensity to consume.

How could toughened federal regulations of businesses during the current decade have inhibited a rightward shift in the imvestment function?

In light of the above discussion, how is a greater degree of habit persistence in consumption likely to affect the marginal propensity to save? Explain your reasoning.
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