Describe the relationship between investment and the level of disposable income.
What will be an ideal response?
Investment is autonomous with respect to disposable income. That is, the level of disposable income does not determine investment, but the level of the interest rate does. A decrease in the interest rate increases autonomous investment and an increase in the interest rate decreases autonomous investment.
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If the SRAS curve intersects the AD curve to the right of Natural Real GDP, the economy is
A) in a recessionary gap. B) in either a recessionary gap or an inflationary gap, but we need more information to determine which one. C) in an inflationary gap. D) at full-employment Real GDP.
Answer the following statement true (T) or false (F)
1) Elasticity of resource demand is measured by dividing "percentage change in resource price" by "percentage change in resource quantity." 2) An increase in the price of capital will reduce the demand for labor if capital and labor are complementary resources. 3) The marginal productivity theory of income distribution holds that all resources are paid according to their marginal contribution to society's output. 4) The marginal productivity theory of income distribution holds that all resources are paid according to their marginal contribution to society's output.