Suppose That,at a Given Level of Disposable Income,consumers Decide to Save

question 53

Essay

Suppose that,at a given level of disposable income,consumers decide to save more.Explain what effect this decision will have on equilibrium income.Also,explain what effect this decision will have on the level of saving once the economy has reached the new equilibrium.

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Definitions:

Demand Curve

A graph representing the relationship between the price of a good and the quantity of that good that buyers are willing to purchase at that price.

Quantity Supplied

The total amount of a product or service that producers are willing and able to sell at a certain price level.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price over a specific period.

Income Effect

The change in an individual's or economy's consumption resulting from a change in real income.