Macro Econ Homework

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Wxbyb

Economics

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Instructions

Answer the following from the Problems Appendix in the back of your textbook on pp. 330-333. ◾Chapter 9: Questions 1, 4, and 9

◾Chapter 10: Questions 3, 5, and 6

◾Chapter 11: Questions 1, 4, 7, and 9

◾Chapter 12: Questions 2, 5, and 8

Your completed Homework assignment should be at least six pages in length. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations. All references and citations used must be in APA style.

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Explanation & Answer

The plagiarism level is high but due to the questions and the graphs. the response are plagiarism free
Attached.

Running Head: BUSINESS QUESTIONS

Business Questions
Student’s Name
Institution Affiliation

1

BUSINESS QUESTIONS

2
Question 9

Explain what a consumption function illustrates and interpret its slope
1. (Consumption) Use the following data to answer the questions below:
Consumption

Expenditures

Real Disposable Income

Savings
(Income less expenditure)

(Billions)

(Billions)

(Billions)

$100

$150

$ -50

$200

$200

$0

$300

$250

$ +50

$400

$300

$ +100

(a) Graph the consumption function, with consumer spending on the vertical axis and disposable
income on the horizontal axis.

BUSINESS QUESTIONS

3

(b) If the consumption function is a straight line, what is its slope?
To calculate the slope requires two points from the consumption function line. Points
(300,250) and (200,200)
Slope = Δ Yd /ΔC = (250 -200) / (300 – 200)
Slope = 50/100 = ½

(c) Fill in the savings column at each level of income. If the saving function is a straight line,
what is the slope?

Saving function Slope
Two points (200, 0) and (400, 100)
Slope = Δ Yd /Δ S = (100 – 0) / (400 – 200)
100/200 = ½

4. Consumption Function. How would an increase in each of the following affect the
consumption function?

BUSINESS QUESTIONS

4

a. Net taxes
A rise in net taxes will produce a downward shift. The increase reduces the available
disposable income. The fall in the income then reduces the cash available for spending on
consumption causing a downward shift.
b. The interest rates
A rise in interest rates induces a downward movement of the consumption function. Increase
in interest rates induces less consumption and more saving causing the consumption function
to move downwards.
c. Consumer optimism, or confidence
A rise in confidence causes an upward shift. The boost in optimism increases the demand for
goods and services which induces spending causing an upward shift.
d. The price levels
Price level increase shifts the consumption function downwards. Price levels are inversely
proportional to the consumption function. A rise in price levels makes the goods costly. It
decreases money purchasing power inducing more saving and less consumption at different
income levels hence the downward shift.
e. Consumers’ net wealth
Increase in consumer’s net wealth causes an upward shift. The increase indicates the rise in
purchasing power increasing the quantity demand for products. It increases the consumers
desire to spend hence the upward movement in the consumption function.

BUSINESS QUESTIONS

5

f. Disposable income
Disposable income increase would result in an upward shift. Disposable income is directly
proportional to consumption function. The rise in disposable income increases consumption
spending. Therefore, an increase causes the ...


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