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Chapter 12: Q. 2 (page 273)

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.

Short Answer

Expert verified

The solution for this question is the consumption curve shifts upwards.

Step by step solution

01

Introduction

The budget constraint curve, often known as the C+1+G+X curve, is drawn with the price level held constant. The HUKU method pushes consumers to save more and consume less in order to build up their savings. This will assist them in covering the costs of health-care services.

02

Conclusion

As a result of this system, the consumption curve will move downwards, and the curve depicting C+1+G+X will shift downwards as well. The absence of this system, on the other hand, will stimulate additional consumption, shifting the curve C+1+G+X upward.

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Most popular questions from this chapter

Classify each of the following as either a stock or a flow.

a. Myung Park earns \(850per week.

b. Time Warner purchases \)100million in new telecommunications equipment this month.

c. Sally Schmidt has \(1,000 in a savings account at a credit union.

d.XYZ, Inc., produces 200units of output per week.

e. Giorgio Giannelli owns three private jets.

f. Apple's production declines by 750digital devices per month.

g. Russia owes \)25 billion to the International Monetary Fund.

In an economy in which the multiplier has a value of 3, the price level has decreased from 115 to 110. As a consequence, there has been a movement along the aggregate demand curve from S18trillion in real GDP to 18.9 trillion in real GDP.

a. What is the marginal propensity to save?

b. What was the amount of the change in planned expenditures generated by the decline in the price level?

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

At an initial point on the aggregate demand curve, the price level is125, and real GDP is S18trillion. When the price level falls to a value of 120, total autonomous expenditures increase by\(250 billion. The marginal propensity to consume is \)0.7. What is the level of real GDP at the new point on the aggregate demand curve?

At an initial point on the aggregate demand carve, the price level is100, and real GDP is\(18trillion. After the price level rises to110 , however, there is an upward movement along the aggregate demand curve, and real GDP declines toSl4 trillion. If total planned spending declined by \)200 billion in response to the increase in the price level, what is the marginal propensity to consume in this economy?
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