Assume you are an instructor of a college macroeconomics course. Using the Mitra
ID: 1204430 • Letter: A
Question
Assume you are an instructor of a college macroeconomics course. Using the Mitra Kalita (2011) article as a basis, compare and contrast the concepts of consumption, investment, and net exports in a PowerPoint presentation for your students. Be certain to address the following key components: • How do Kalita define Consumption? • In what manner do the contents of the article serve as investment component of aggregate demand? • What impact does the concept of investment have on the level of employment and income in the economy? • Do you agree with Kalita’s thoughts on the importance of switching from a housing and finance dominated economy to an engineering or manufacturing economy? • What is the correlation between consumption, investment and net exports?
Explanation / Answer
Consumption function exhibits the functional relationship between consumption and disposable income.
C = C' + c(Y-T)
Investment is assumed to be autonomous or exogenously determined but it can be negatively related to the interest rate. It is a part of national income accounting equation AE = Y.
Increase in investment raises income and output multiple times through mulitplier effect. This implies investment contribute in growth.