Question

Suppose the majority of students who are graduating in May from a large university have found jobs and signed employment contracts by February. Starting in February, these students are likely to __________ spending and __________ saving.

Answer 1

Answer:

increase , reduce

Explanation:

Assumption: The given problem has been solved upon the assumption that students, who are in the process of entering employment, will lead to the possibility of increased spendings, since such students disposable income rises.

Aggregate demand represents the total demand for all goods and services produced in an economy during a period.

Mathematically, Aggregate Demand is represented as follows:

AD = C + I + Net Exports + G

wherein,

C = Consumption

I = Investment

Net Exports = Exports - Imports

G= Government Spending

In the given case, students which earlier had no income of their own, will now have a disposable income. Owing to which, their consumption spending would increase.

As a result of this, the savings would reduce.

Y = C + I + G

where, Y = National Income

          I = Investment

          G= Government expenditure

Aggregate demand will increase as a consequence.