Problems

DEREE COLLEGE DEPARTMENT OF ECONOMICS EC 1101 PRINCIPLES OF ECONOMICS II Dr. Andreas Kontoleon Contact: a.kontoleon@ucl.ac.uk

FALL SEMESTER 2002

M-W-F 13:00-13:50

Office hours: Wednesdays 15:00-17:00

Study Questions for Chapter 9 (Answer Sheet)

9-1

9-2

Explain what relationships are shown by (a) the consumption schedule, (b) the saving schedule, (c) the investment-demand curve, and (d) the investment schedule. (a) The consumption schedule or curve shows how much households plan to consume at various levels of disposable income at a specific point in time, assuming there is no change in the nonincome determinants of consumption, namely, wealth, the price level, expectations, indebtedness, and taxes. A change in disposable income causes movement along a given consumption curve. A change in a nonincome determinant causes the entire schedule or curve to shift. (b) The saving schedule or curve shows how much households plan to save at various levels of disposable income at a specific point in time, assuming there is no change in the nonincome determinants of saving, namely, wealth, the price level, expectations, indebtedness, and taxes. A change in disposable income causes movement along a given saving curve. A change in a nonincome determinant causes the entire schedule or curve to shift. (c) The investment-demand curve shows how much will be invested at all possible interest rates, given the expected rate of net profit from the proposed investments, assuming there is no change in the noninterest-rate determinants of investment, namely, acquisition, maintenance, operating costs, business taxes, technological change, the stock of capital goods on hand, and expectations. A change in any of these will affect the expected rate of net profit and shift the curve. A change in the interest rate will cause movement along a given curve. (d) The investment schedule shows how much businesses plan to invest at each of the possible levels of output or income....