Question

The saving schedule shows the relationship of saving of households to the level of

1. consumption.
2. investment.
3. disposable income.
4. the average propensity to save.

Dissaving occurs when

1. income is greater than saving.
2. income is less than consumption.
3. saving is greater than consumption.
4. saving is greater than the interest rate.

Two basic determinants of investment spending are

1. consumer spending and government spending.
2. expected returns and real interest rates.
3. general price level and the level of output.
4. domestic trade and international trade.

Given the expected rate of return on all possible investment opportunities in the economy, a(n)

1. increase in the real rate of interest will tend to increase the level of investment.
2. decrease in the real rate of interest will tend to increase the level of investment.
3. decrease in the real rate of interest will tend to decrease the level of investment.
4. change in the real interest rate will have no im

Answer 1

1. C. disposable income.
(Saving is written as -S + sYd where Yd is disposable income.)

2. B. income is less than consumption
(When consumption is greater than income then dissavings occur.)

3. B. expected returns and real interest rates.
(Investment is determined by expected returns on investment and real interest rate)

4. B. decrease in the real rate of interest will tend to increase the level of investment.
(Investment and real interest rate are inversely related to each other.)