Suppose individuals expect future output to be lower and future interest rates to be lower. Given this information, how will individuals alter consumption in the current period? Explain
What will be an ideal response?
The effects are ambiguous. The reduction in future Y will reduce human wealth and cause C to decrease. The decrease in future rates will increase the present value of future disposable income and increase C.
You might also like to view...
Economics examines the options open to households and business firms, but ignores the options of governments and entire societies.
Answer the following statement true (T) or false (F)
Money is what people in a society regularly use when purchasing or selling goods and services.
Select whether the statement is true or false. A. True B. False
Which of the following was not a major area addressed by the Dodd-Frank Bill (i.e., Wall Street Reform and Consumer Protection Act of 2010)
a. Ensuring that investment banks and others had "skin in the game" by restricting their ability to securitize 100% of their mortgage-backed loans. b. Reducing systemic threats to the U.S. financial system. c. Solving the "too big to fail" problem in the U.S. financial system. d. Improving credit rating agency performance and accountability. e. All of the above.
The marginal revenue that would be derived from producing the fourth unit of output is
A. $24.
B. $22.
C. $20.
D. $18.