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Using the augmented investment demand schedule from question 8(c) and assuming that the interest rate is 10 percent, calculate the level of investment for cases a through d in question 8.
What would be the effects of the following on the investment demand function illustrated in Table 21-5 and Figure 21-8? a. A doubling of the annual revenues per $1000 invested shown in column (3) b. A rise in interest rates to 15 percent per year c. The addition of a ninth project with data in the fi rst three columns of ( J, 10, 70) d. A 50 percent tax on net profi ts shown in columns (6) and (7)
“Changes in disposable income lead to movements along the consumption function; changes in wealth or other factors lead to a shift of the consumption function.” Explain this statement with an illustration of each case.
“Along the consumption function, income changes more than consumption.” What does this imply for the MPC and MPS?
Estimate your income, consumption, and saving for last year. If you dissaved (consumed more than your income), how did you fi nance your dissaving? Estimate the composition of your consumption in terms of each of the major categories listed in Table 21-1.
I consume all my income at every level of income. Draw my consumption and saving functions. What are my MPC and MPS?
. In working with the consumption function and the investment demand schedule, we need to distinguish between shifts of and movements along these schedules. a. Defi ne 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 profi ts.
