39. Which of the following may shift the consumption function upward (Consumers spend more of any...

39. Which of the following may shift the consumption function upward (Consumers spend more of any given amount of disposable income)?

		An increase in disposable income
		A decrease in interest rates
		A significant decrease in stock prices
		A decrease in people's ability to borrow

40. A government budget deficit has which of the following effects in the market for Investment funds?

		Decreases the amount of private saving by households
		Increases the level of investment in the economy
		Reduces the availability of funds for some private investment
		It has no effect on the market

Solutions

Expert Solution

39. Option B is correct.

When the interest rate falls, it is easier to finance the consumption spending and less is saved, and so more is consumed.

40. Option C is correct.

This phenomena is often called as crowding out. When government also borrows funds from the loanable funds market, the demand increases and so does the interest rates.

Rahul Sunny answered 1 year ago

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