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Austrian business cycle theory part 1 What is the Cc/S ratio?

part 2 The CC/S ratio changes from $900/$100 to $700/$300. Graphically show what happens in the loanable funds market as a result.

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The world has billions of consumers, but for now let’s focus on only one. We will assume that this one consumer is representative of other consumers. Let’s say that this representative consumer earns $1,000 a week. Out of the $1,000 he earns each week, he spends $900 on goods and services and saves $100. We can say that he has a current consumption-saving ratio (CC/S ratio) of $900/$100. CC/S = $900/$100 Now ask yourself, what is our representative consumer saving for? People save today so that they can consume more in the future (i.e., more than they would if they didn’t save). For example, a person might save in his working years so that he can consume in his retirement years.

What this means is that “saving” (S) is just another name for “future consumption (CF ).” S = CF So instead of talking about a CC/S ratio of $900/$100, we can talk about a CC/CF ratio of $900/$100. CC/CF = $900/$100 The CC/CF ratio that a person has depends upon that person’s rate of time preference. A person’s rate of time preferences is the degree to which a person prefers current (or present) satisfactions to future satisfactions; it is the degree to which a person prefers current consumption to future consumption. Get Finance homework help today