Suppose that, at a given level of disposable income, consumers decide to save more. Explain what effect this decision will have on equilibrium income. Also, explain what effect this decision will have on the level of saving once the economy has reached the new equilibrium
What will be an ideal response?
This is the paradox of saving. Here, consumption will fall causing a reduction in demand and a reduction in output. Despite the initial increase in saving at the initial level of income, saving will return to the initial level as income falls in order to maintain the alternative equilibrium condition: S = I. So, the initial increase in the desire to save will have no permanent effect on the level of saving.
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Whenever somebody deposits a check from bank A into a checkable deposit at bank B, bank A's reserves ________ and bank B's reserves ________
A) increase; decrease B) increase; increase C) decrease; decrease D) decrease; increase E) do not change; do not change
An example of a tax-funded program intended to provide basic human needs is the provision of:
A. public education. B. police protection. C. health care. D. national defense.
Which of the following is false?
a. A production possibilities curve represents the potential total output combinations of any two goods for an economy. b. On a production possibilities curve, we assume that the economy has a given quantity and quality of resources and technology available to use for production. c. If an economy is operating inside its production possibilities curve, it is not at full capacity, and is operating inefficiently. Such an economy's actual output is less than potential output. d. By putting unemployed resources to work or by putting already employed resources to better uses, we could shift out the production possibilities curve.
A key distinction between microeconomics and macroeconomics is the use of monetary policy. Monetary policy is conducted by:
a. local banks. b. a nation’s central bank. c. a nation’s legislative body. d. a state’s legislative body.