Problem 12 Under what conditions can consum... [FREE SOLUTION]

Chapter 8: Problem 12

Under what conditions can consumption rise without some other spending component declining?

Short Answer

Expert verified

Consumption can rise without any other spending component declining under the conditions that overall GDP increases. This can occur due to factors like a favourable business environment, technological advancements resulting in increased economic outputs, or an increase in net exports.

Step by step solution

Identify the source of increased consumption

Increased consumption can be driven by factors like a rise in income, increase in consumer confidence, or any external influences that lead to higher consumption; all without requiring other spending components to decline.

Understand the impact of increase in overall GDP

If the overall GDP increases due to some external factors such as a favourable business environment, technological advancement or increase in human capital, then it's possible for consumption to rise without some other spending component declining. This is because with an increase in overall GDP, there is more money in the economy to be spent, allowing for consumption to increase alongside the other components.

Examine the influence of net exports

When net exports increase (when exports are greater than imports), it will allow for an increase in consumption without the need for other spending components to decline. This is because net exports contribute positively to GDP, leading to a rise in economic output.