Answer to Question #249223 in Macroeconomics for Biba

Question

2. In working with the consumption function and the investment demand schedule, we need to distinguish between shifts of and movements along these
schedules.
a. Define carefully for both curves changes that would lead to shifts of and those that would produce movements along the schedules.
b. For the following, explain verbally and show in a diagram whether they are shifts of or movements along the consumption function: increase in disposable income, decrease in wealth, fall in stock prices.
c. For the following, explain in words and show in a diagram whether they are shifts of or movements along the investment demand curve: expectation of a decline in output next year, rise of interest rates, increase in taxes on profits.

Answer 1

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