Author Question: New information ought not to influence economic decision-making if ________. A) consumers rely on ... (Read 172 times)

Deast7027 · **on:** Jun 30, 2018

New information ought not to influence economic decision-making if ________.

A) consumers rely on rational expectations
B) monetary policy changes
C) monetary and/or fiscal policy changes
D) that information has already been anticipated

Question 2

Suppose consumer confidence improves and as a result, consumer spending increases by 50 billion dollars. Assume households spend 0.80 of each extra dollar of income and save the remaining 0.20.

Other things equal, calculate by how much spending will increase during:
a. the first round through the circular flow.
b. the second round through the circular flow.
c. the third round through the circular flow.
d. the fourth round through the circular flow.

Juro · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

D

Answer to Question 2

a. Through the first round of the circular flow, spending will increase by 50 billion.
b. Through the second round of the circular flow, spending will increase by (50 billion 0.80 ) = 40 billion.
c. Through the third round of the circular flow, spending will increase by (40 billion 0.80 ) = 32 billion.
d. Through the fourth round of the circular flow, spending will increase by (32 billion 0.80 ) = 25.6 billion.