W hen you walk into a store, you are confronted with thousands of goods that
tải về 1.28 Mb. Chế độ xem pdf
|
- Điều hướng trang này:
- An Increase in the Interest Rate 0 (a) Higher Interest Rate Raises Saving (b) Higher Interest Rate Lowers Saving Consumption when Old
- Consumption when Old Consumption when Young
- Consumption when Young
- 456 PART VII
| FIGURE
16 In both panels, an increase in the interest rate shifts the budget constraint outward. In panel (a), consumption when young falls, and consumption when old rises. the result is an increase in saving when young. In panel (b), consumption in both periods rises. the result is a decrease in saving when young. Consumption_when_Old'>An Increase in the Interest Rate 0 (a) Higher Interest Rate Raises Saving (b) Higher Interest Rate Lowers Saving Consumption when Old I 1 I 2 BC 1 BC 2 0 I 1 I 2 BC 1 BC 2 Consumption when Old Consumption when Young 1. A higher interest rate rotates the budget constraint outward . . . 1. A higher interest rate rotates the budget constraint outward . . . 2. . . . resulting in lower consumption when young and, thus, higher saving. 2. . . . resulting in higher consumption when young and, thus, lower saving. Consumption when Young 65875_ch21_ptg01_433-460.indd 455 15/10/13 11:53 AM Copyright 201 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 456 PART VII tOpICS FOr FUrther StUDY The case shown in panel (b) might at first seem odd: Saul responds to an increase in the return to saving by saving less. Yet this behavior is not as peculiar as it might seem. We can understand it by considering the income and substitu- tion effects of a higher interest rate. Consider first the substitution effect. When the interest rate rises, consumption when old becomes less costly relative to consumption when young. Therefore, the substitution effect induces Saul to consume more when old and less when young. In other words, the substitution effect induces Saul to save more. Now consider the income effect. When the interest rate rises, Saul moves to a higher indifference curve. He is now better off than he was. As long as consump- tion in both periods consists of normal goods, he tends to want to use this increase in well-being to enjoy higher consumption in both periods. In other words, the income effect induces him to save less. The result depends on both the income and substitution effects. If the substi- tution effect of a higher interest rate is greater than the income effect, Saul saves more. If the income effect is greater than the substitution effect, Saul saves less. Thus, the theory of consumer choice says that an increase in the interest rate could either encourage or discourage saving. This ambiguous result is interesting from the standpoint of economic theory, but it is disappointing from the standpoint of economic policy. It turns out that an important issue in tax policy hinges in part on how saving responds to inter- est rates. Some economists have advocated reducing the taxation of interest and other capital income. They argue that such a policy change would raise the after- tax interest rate that savers can earn and thereby encourage people to save more. Other economists have argued that because of offsetting income and substitution effects, such a tax change might not increase saving and could even reduce it. Unfortunately, research has not led to a consensus about how interest rates affect saving. As a result, there remains disagreement among economists about whether changes in tax policy aimed to encourage saving would, in fact, have the intended effect. 21-5 Conclusion: Do people really think this Way? The theory of consumer choice describes how people make decisions. As we have seen, it has broad applicability. It can explain how a person chooses between pizza and Pepsi, work and leisure, consumption and saving, and so on. At this point, however, you might be tempted to treat the theory of consumer choice with some skepticism. After all, you are a consumer. You decide what to buy every time you walk into a store. And you know that you do not decide by writing down budget constraints and indifference curves. Doesn’t this knowledge about your own decision making provide evidence against the theory? The answer is no. The theory of consumer choice does not try to present a lit- eral account of how people make decisions. It is a model. And as we first dis- cussed in Chapter 2, models are not intended to be completely realistic. tải về 1.28 Mb. Chia sẻ với bạn bè của bạn:
|