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Chapter 12: Q. b-For Critical Thinking (page 264)

In principle, what might be possible causes of the observed diminishment of the rightward shifts of Germany's investment function over time? (Hint: Recall that changes in productive technology or business tares affect levels of planned investment spending.)

Short Answer

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Executives repeatedly emphasized Germany's existing competitive advantage in terms of the country's well-established technical networks, which enable efficient information and experience sharing.

Step by step solution

01

Introduction.

Purchases of machinery, land, factors of production, or infrastructure are examples of investment spending.

Investing expenditure differs from investment, which is the acquisition of assets such as stocks, securities, and futures. Another name for it is capital formation.

02

Germany's investment function.

The repercussions of the global economic crisis in Germany were as follows: industrial production in Germany fell by 40%during this period. Inflation was strong, and the currency had depreciated as a result. There was a lot of unemployment, so people stood on the side of the road announcing that they would do any job.

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Most popular questions from this chapter

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.

At various times in the past-the early 1980s, early1990s, early 2000s, and late 2000s-business profit expectations plummeted, and firms cut back on their investment spending. The ratio of total investment spending to companies' aggregate profit flows decreased markedly. In each instance, real GDP declined, and the U.S. economy fell into recession. At the end of the recession intervals of the early1980s, early 1990s, and early 2000s, business profit expectations improved. Firms responded by boosting their investment spending, and both real GDP and the ratio of investment expenditures to firms' profits recovered fully. At the conclusion of the late-2000s recession, however, this ratio failed to return to its previous level. By the time you have completed this chapter, you will understand why the result during this current decade has been a sluggish improvement in real GDP and, hence, an unusually slow economic recovery.

Understand the relationship between total planned expenditures and the aggregate demand curve

Consider the following diagram, which depicts a country with no government expenditure, taxes, or net exports. Answer the following questions and explain your responses using the information in the diagram.

a. What is the marginal saving propensity?

a. What is the current level of projected investment spending over the next few years?

c. What is the current period's equilibrium level of real GDP?

d. What is the current period's saving equilibrium level?

e. What will the change in equilibrium real GDP be if planned investment spending for the current period is increased by$25billion? What will the new real GDP equilibrium level be if all other variables, including the price level, remain constant?

At an initial point on the aggregate demand curve, the price level is 100, and real GDP is S18trillion. After the price level rises to 110 , however, there is an upward movement along the aggregate demand curve, and real GDP declines to S14trillion. 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?

In light of the fact that a fall in real net wealth during a recession causes real saving to increase, does the saving function shift upward or downward when real net wealth decreases? Explain your reasoning.
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