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Economic Princples

Please explain in detail to improve my understanding of these questions.

23-4 Why is there a trade off between the amount of consumption that they can enjoy today and the amount of consumption that they can enjoy in the future? Why cant people enjoy more of both? How does saving relate to investment and thuus to economic growth? What role do banks and other financial intstitutions play in aiding the growth process?

26-6 Explain how an increase in your nominal income and a decrease in your real income might occur simultaneously. Who loses from inflation? Who loses from unemployment? If you had to choose between (a) full employment with a 6 percent annual rate of inflation and (b) price stability with an 8 percent unemployment rate, which would you choose? Why?

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1. The trade off between present and future consumption occurs as a result loans (or saving). A consumer makes a certain amount of money in his lifetime, and these money is paid to him periodically (i.e. wage). If the consumer chooses to save the money, he is reducing present consumption and increasing future consumption (we assume this person spends all his money in his lifetime). Similarly, if the person decides to borrow, then he is increasing his present consupmtion and reducing future consumption because he has to pay back the loan. As you can see, increasing present consumption reduces future consumption and vice versa. There is no way to enjoy more of both, given a fixed income.

Now we discuss saving.

Saving leads to long term economic growth. ...

Solution Summary

Economic Princples