Suppose That People Finally Realize That They Must Save a Larger

question 21

Essay

Suppose that people finally realize that they must save a larger proportion of their income in order to retire and that they simultaneously begin to use new technology that allows them to reduce their holdings of real cash balances as a proportion of their income. Use the IS-LM model to illustrate graphically the impact of these two changes in household behaviour on output and interest rates. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; and v. the terminal equilibrium values.

Learn how the theory of consumer choice demonstrates key economic principles such as trade-offs.

Understand the relationship between consumer income and the consumption of normal and inferior goods.

Recognize the concept of a Giffen good and its implications for the law of demand.

Grasp the relationship between the substitution effect and the consumer's choice behavior.

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American Hospital Association

A national organization that provides education, research, and advocacy for its member hospitals and health care entities.