Answer to Question #235565 in Macroeconomics for Samra

Question

8. Define consumption and saving along with their schedules. Also discuss the determinants of consumption and saving.

9. Explain the relationship between investment and interest rate.

Answer 1

8.Individuals allocate new money between spending and saving in a consumption function of this type.Consumption rises in lockstep with current income, and the higher the marginal propensity to consume, the more current expenditure is influenced by current disposable income.

9.Greater interest rates deter investment since they raise the cost of borrowing and necessitate a higher rate of return on investment to be profitable. An increase in capital stock, such as the purchase of a factory or machine, is referred to as private investment.