Consider the Impact of an Increase in Thriftiness in the Keynesian-Cross

question 93

Multiple Choice

Consider the impact of an increase in thriftiness in the Keynesian-cross analysis. Assume that the marginal propensity to consume is unchanged, but the intercept of the consumption function is made smaller so that at every income level saving is greater. This will:

• A) increase saving by the decrease in the intercept.
• B) lead to no change in saving.
• C) decrease saving by the decrease in the intercept.
• D) lead to an increase in investment.

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Definitions:

Average Rate

A statistical measure that represents the central or typical value in a set of rates or ratios, often used in financial contexts to describe mean returns or interest rates.

Investment Account

An account that holds securities, cash, and other investments for investment purposes.

Investing

The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.

Compounded Annually

The process where interest earned in one period is added to the principal sum and then interest in the next period is calculated on the new total.