Define wealth. What is the effect of increase in wealth on the consumption and saving schedules?
What will be an ideal response?
The wealth of a household is the difference between the assets that it owns and the dollar amount of its liabilities. When wealth increases, it shifts the consumption schedule upward as people consume more at each level of disposable income. There is an opposite effect on saving. The saving schedule shifts downward at each level of disposable income because people save less.
You might also like to view...
Monetary policy is impotent when the LM curve is
A) vertical. B) horizontal. C) downward-sloping. D) horizontal or downward-sloping.
Stationarity means that the
A) error terms are not correlated. B) probability distribution of the time series variable does not change over time. C) time series has a unit root. D) forecasts remain within 1.96 standard deviation outside the sample period.
Which of the following is true if the price of coffee increases?
a. The demand for tea, a substitute good, will decrease. b. The demand for coffee will increase. c. The demand for coffee and tea will decrease. d. Both the demand for coffee and tea will increase. e. The demand for tea, a substitute good, will increase.
A decrease in the required reserve ratio will:
a. reduce commercial bank loans and reduce the money supply. b. increase commercial bank loans and reduce the money supply. c. increase commercial bank loans and increase the money supply. d. decrease commercial bank loans and increase the money supply.