According to the classical model shown in Figure 4.1, an autonomous decline in investment shifts the investment schedule to the left. Furthermore, the equilibrium interest rate declines. Distance B describes an interest rate induced
a. decline in saving, which is an equal increase in consumption.
b. increase in investment.
c. decrease in investment.
d. decline in saving, which exceeds the increase in consumption.
Question 2
Seignorage is also known as an inflation tax since ________.
A) money balances lose value in real terms
B) inflation can be caused by rising energy costs
C) higher interest rates can crowd-out investment spending
D) budget deficits entail an increase in the size of the national debt
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