Intro to Macroeconomics (7 Questions) - Assignment Example

In comparison, the investment curve determines how much money a consumer will invest at available interest charges. This is determined by the expected net profits from the available investments. One main determinant of this is the non-changing non-interest rate determinants, which are the same as the determinants of the consumption schedule. The investment schedule is considered less stable than the consumption schedule since it is determined by the interest rates as compared to the income of the individual.

Built in stabilizers refer to government policies that cause budget deficits to grow during economic downtimes, or cause surpluses to increase due to increased economic recession. Two examples of built-in stabilizers are tax structures and government spending. In the computation of the Gross Domestic Product of a country, the gros private investment (Ig) is an important factor. This is because the gross private investment provides a measure of the future financial state of the country. The gross private investment is calculated as the sum of the replacement purchases of the population and the investments done to gain inventory.

The net private investment is calculated as the above figure less depreciation experienced in the country. An increase in the gross private investment serves to increase net GDP since the factors of the sum are also included in the factors of the GDP. The bearing of the marginal propensity to consume and the marginal propensity to save (MPC and MPS), both have bearings on the spending multiplier since they are both factors of the formula for the multiplier. When the MPS is given, the multiplier is calculated as the reciprocal of the MPS.

When the MPS is 0.6, the multiplier is 1.667, when the MPS is 0.75, the multiplier is 1.333, and when the MPS is 0.8, the multiplier is 1.25. The open economy multiplier is given by the equation, 1/(1-MPC + MPM), while the closed economy multiplier is given by 1/(1-MPC). Built in