A Suppose a Government Education Program Succeeds in Getting Households

question 49

Essay

a. Suppose a government education program succeeds in getting households to save more (you may interpret this as a downward shift in the consumption function). Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of the higher saving rate by households. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction curves shift; and v. the terminal equilibrium values.
b. State in words what happens to: i. the real interest rate; ii. national saving; iii. investment; iv.
consumption; and v. output.

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Definitions:

Countercyclical Stock

A type of stock whose performance is inversely related to the overall economic cycle, often performing better during economic downturns.

Expected Return

It represents the weighted average of all possible returns from an investment, considering the probabilities of each outcome.

Beta

A measure of a stock's volatility in relation to the overall market; indicating the relative risk associated with investing in the stock.