Introduction -week 1 Ch2 Flashcards
1
Q
- Given income, how are consumption and saving linked? What is the basic motivation for saving?
A
c
2
Q
- How are desired consumption and desired saving affected by increases in current income, expected future income, and wealth?
A
g
3
Q
- Use the concepts of income effect and substitution effect to explain why the effect on desired saving of an increase in the expected real interest rate is potentially ambiguous.
A
g
4
Q
- Define the expected after-tax real interest rate. If the tax rate on interest income declines, what happens to the expected after-tax real interest rate?
A
g
5
Q
- What effect does a temporary increase in government purchases—for example, to fight a war—have on desired consumption and desired national saving, for a constant level of output? What is the effect on desired national saving of a lump-sum tax increase? Why is the effect of a lump-sum tax increase controversial?
A
g
6
Q
- What are the two components of the user cost of capital? Explain why each is a cost of using a capital good.
A
g
7
Q
- What is the desired capital stock? How does it depend on the expected future marginal product of capital, the user cost of capital, and the effective tax rate?
A
g
8
Q
- What is the difference between gross investment and net investment? Can gross investment be positive when net investment is negative?
A
g
9
Q
- Give two equivalent ways of describing equilibrium in the goods market. Use a diagram to show how goods market equilibrium is attained.
A
g
10
Q
- Explain why the saving curve slopes upward and the investment curve slopes downward in the saving– investment diagram. Give two examples of changes that would shift the saving curve to the right, and two examples of changes that would shift the investment curve to the right.
A
g
