Take Home Quiz - Macroeconomics

Topics: Macroeconomics, Investment, Consumption Pages: 3 (790 words) Published: February 23, 2013
Varrian Ilao Take Home Quiz
TM09306 Basic Macroeconomics

1. Suppose that society decided to reduce consumption and increase investment. a. How would this change affect economic growth?

* Doing so will definitely affect the cash flow within the community making it hard for companies to gain profit. Prices will surely be lowered down, and stocks might be put to waste since there are so much available.

b. What groups in society would benefit from this change? What groups might be hurt?

* Groups of people who are obviously into saving but at the same time risk takers would most likely be happy on increasing their investment. These are the type of people who are always frugal and will always have second thoughts on acquiring things. Those with businesses that is in the goods-consumption industry, which is the main source of their income, would not be so happy with this kind of incident.

2. Societies choose what share of their resources to devote to consumption and what share to devote to investment. Some of these decisions involve private spending; others involve government spending. a. Describe some forms of private spending that represent consumption and some forms that represent investment. The national income accounts include tuition as part of consumer spending. In your opinion, are the resources you devote to your education a form of consumption or a form of investment?

* Private spending includes acquiring those needs, eg. Food, clothing, medicine. Investment for me always includes something that would make your spending much worthwhile and you would gain something out of it. It could be a health insurance, a house or some shares in a small company.

* Education for me can be both a form of consumption and a form of investment. Consumption because you use money to pay for your tuition, and it reduces your cash on hand. Investment because with all that spending, you gain something...
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