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Macroeconomic theory and policy phần 4

Tham khảo tài liệu 'macroeconomic theory and policy phần 4', kinh doanh - tiếp thị, quản trị kinh doanh phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 4.3. EXPERIMENTS 83 feel free to begin with either a positive or negative trade balance . Now since Ayi Ay2 Ay 0 we can depict this change as a 450 shift of the endowment A B . Since the interest rate is unaffected this implies an outward shift of the intertemporal budget constraint. Once again the shock makes individuals wealthier. Note that the increase in wealth is greater than the case in which the shock to GDP was transitory. The question now is where to place the new indifference curve. Assuming that consumption at each date is a normal good then the increase in wealth results in an increase in consumer demand in both periods i.e. AcD 0 and AcD 0. Notice that the shift in the consumption pattern is similar to the shift in the endowment pattern. While this shift need not be precisely identical for simplicity assume that it is. In this case AcD Ay and AcD Ay. We can depict such a response by placing the new indifference curve at a point northeast of the original position e.g. point C in Figure 4.7. FIGURE 4.7 A Permanent Increase in GDP ACjD Once again the consumption response is similar to the other two experiments. Note however that the size of the increase in consumer spending is much larger here compared to when the income shock was transitory. In particular our theory predicts that the marginal propensity to consume out of current income when the income shock is perceived to be permanent is ap- 84 CHAPTER 4. CONSUMPTION AND SAVING proximately equal to Acd Ayi 1.0. In other words our theory suggests that the marginal propensity to consume out of current income depends critically on whether shocks to income are perceived to be transitory or permanent. 4.3.4 A Change in the Interest Rate A change in the interest rate changes the slope of the intertemporal budget constraint which implies a change in the relative price of current and future consumption. Whenever a price changes we know that in general there will be both a substitution effect and a wealth effect