1.

a. The determinants of the consumption and saving schedules are level of

disposable income and direct consumption.
b. The basic determinant of my personal level of consumption is disposable
income. If I have more of disposable income meaning money that don’t have to
go towards bills and can be used towards whatever I desire I would have more
of money to be used towards my consumption.
2.
a. The basic determinants of investment are the expected rate of return that
Businesses hope to realize from investment spending, and the real rate of
interest.
b. When the real interest rate raises, investment decreases; and when the real
interest rate Drops, investment increases, other things equal in both cases.
c. Investment is unstable because, unlike most consumption, it can be put off.
d. As long as expected rates of return rise faster than real interest rates,
investment spending may increase.
3.
a. When your consumption schedule shifts upward meaning that you are
consuming more out of any given income, and you’re saving schedule shifts
downward meaning that you are consuming less out of the same given income.
b. The exception to this relationship is a change in personal taxes.
4.
a. The central idea illustrated is the multiplier effect that exists in a market
economic system.
b. The multiplier effect helps us understand why there is a business cycle as
opposed to a stable level of output growth from year to year.