Macroeconomics Essay Example | Topics and Well Written Essays - 750 words - 1

Macroeconomics - Essay Example And this is manifested in the steepness of the curves. As shown above at current utility U1, consumer A3 appears to be more aggressive and impatient compared to consumer A1. That is A3 is consuming 60,000 units now compared to A1 at about 36,000 units with the prevailing interest rates. If everybody moves in the direction of the arrow, which is more time and consumption in the future, then the same scenario is replicated with a marginal change of current consumption. (Balvers, Cosimano & McDonald, 1109-1128) Interest rate can also determine the opportunities of investment. Investment has the purpose of creating future wealth for utilization at that time. Thus considering that one can invest by either a past saving or current borrowing, a saving is composed of one net income less what is consumed. Also in order for one to be able to be wealthy in the future, from a borrowed capital point of view, they will need to have paid the tax on the borrowing with the accrued interest. There after the value of the wealth will ALSO be on the market price plus the principal sum that has been paid back. Consider the diagram below. (Balvers, Cosimano & McDonald, 1109-1128) When we have lower interest rate savings, we are likely to accumulate more wealth for future consumption or for further investment from the decent returns. The concave curve moves outward as shown above. However when we have a higher rate of interest borrowing there will be a lower rate of wealth created for future consumption. The concave curve moves inwards to the left. The two diagrams are now superimposed as shown below. (Balvers, Cosimano & McDonald, 1109-1128) The next point is to establish the optimal point at which interest rates determine the consumption and the investment simultaneously. The aim is to achieve increased wealth utility (consumptions) with