What is the difference between an autonomous increase in consumption and an induced increase in consumption? Give an example of each
An autonomous increase in consumption is one that is caused by something other than a change in the level
of income, while an induced increase in consumption is one that is due to an increase in the level of
income. Possible examples of things that would cause an autonomous increase in consumption include an
increase in real asset or money holdings, expectations of future price increases, wider credit availability or
eligibility, lower interest rates, or lower taxes. The only thing that will cause an induced increase in
consumption is an increase in the level of income.
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In the long run, the nominal interest rate is
A) negatively related to the inflation rate. B) positively related to the inflation rate. C) negatively related to the price level. D) positively related to the price level. E) not related to the price level or the inflation rate.
Which of the following would be a useful way to increase the saving rate?
A) Tax breaks to increase the real return that savers receive B) Increasing taxes if Ricardian equivalence holds C) Increasing government spending D) Increasing taxes on capital goods