In: Economics
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 |
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A decrease in interest rates |
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A significant decrease in stock prices |
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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 |
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Increases the level of investment in the economy |
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Reduces the availability of funds for some private investment |
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It has no effect on the market |
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.