Question 1

The Keynesian consumption function is C = a + bYd. What does &#34;a&#34; represent?&#10;A) The marginal propensity to consume&#10;B) Disposable income&#10;C) Autonomous consumption spending&#10;D) Total consumption

Accepted Answer

In the Keynesian consumption function, "a" represents autonomous consumption spending, which is the level of consumption that occurs even when disposable income (Yd) is zero. This reflects consumption that does not depend on current income, such as spending financed by savings or borrowing.

Question 2

The Keynesian consumption function is C = a + bYd. What does Yd represent?&#10;A) The marginal propensity to consume&#10;B) Disposable income&#10;C) Autonomous spending&#10;D) Total consumption

Accepted Answer

Yd represents disposable income in the Keynesian consumption function. This is the income available to households after taxes and transfers, which they can either spend or save.

Question 3

The Keynesian consumption function is C = a + bYd. What does b represent?&#10;A) The marginal propensity to consume&#10;B) Disposable income&#10;C) Autonomous spending&#10;D) Total consumption

Accepted Answer

The marginal propensity to consume (MPC) is represented by 'b' in the Keynesian consumption function, indicating the fraction of additional income that is spent on consumption.

Question 4

The equation for marginal propensity to consume is:&#10;A) Consumption / income&#10;B) Consumption / sales&#10;C) Change in consumption / change in income&#10;D) Change in consumption / total income

Accepted Answer

The marginal propensity to consume (MPC) is calculated by dividing the change in consumption by the change in income, which accurately reflects how consumption varies with income changes.

Question 5

The average propensity to consume is measured by:&#10;A) Consumption / income&#10;B) Consumption / sales&#10;C) Change in consumption / change in income&#10;D) Change in consumption / total income

Accepted Answer

The average propensity to consume (APC) is calculated by dividing total consumption by total income, which matches choice A. This ratio indicates the percentage of income that is spent on consumption.

Question 6

If consumption is given by C= 10 + 0.8 Yd then as income increases:&#10;A) The size of the marginal propensity to consume increases and approaches the average propensity to consume.&#10;B) The size of the marginal propensity to consume approaches 1.&#10;C) The size of the average propensity to consume approaches infinity.&#10;D) The size of the average propensity to consume approaches the marginal propensity to consume.

Accepted Answer

The marginal propensity to consume (MPC) is constant at 0.8, and as income (Yd) increases, the average propensity to consume (APC), which is C/Yd, approaches the MPC because the constant term (10) becomes less significant relative to Yd.

Question 7

Higher interest rates are likely to increase consumption.

Accepted Answer

Higher interest rates generally increase the cost of borrowing and can lead to decreased consumer spending on goods, services, and investments, thereby reducing consumption.

Question 8

The bigger the marginal propensity to consume the more is spent out of each pound.

Accepted Answer

The marginal propensity to consume (MPC) measures the proportion of additional income that a household spends on consumption. Therefore, a higher MPC means a larger fraction of each pound earned is spent rather than saved.

Question 9

As income increases the marginal propensity to consume will probably fall.

Accepted Answer

As income increases, individuals tend to save a higher proportion of their income, leading to a decrease in the marginal propensity to consume. This is because as people become wealthier, their need to spend additional income on consumption diminishes.

Question 10

Friedman's theory of consumption focused not on current income but on _________ income.

Accepted Answer

The answer of Friedman's theory of consumption focused not on...

Question 11

Spending that takes place even when income is zero is known as:&#10;A) Zero spending&#10;B) Dis-saving&#10;C) Marginal spending&#10;D) None of the above

Accepted Answer

The answer of Spending that takes place even when income...

Question 12

Disposable income is the income an individual has from all sources minus taxes and national insurance contributions.

Accepted Answer

The answer of Disposable income is the income an individual...

Question 13

What is the level of consumption given C = 10 billion + 0.4Yd when disposable income is &#163;100 billion?&#10;A) &#163;110 billion&#10;B) &#163;50 billion&#10;C) &#163;70 billion&#10;D) &#163;40 billion

Accepted Answer

The answer of What is the level of consumption given...

Question 14

What is the level of consumption given C = 25 billion + 0.25Yd when disposable income is &#163;60 billion?&#10;A) &#163;40 billion&#10;B) &#163;50 billion&#10;C) &#163;85 billion&#10;D) &#163;45 billion

Accepted Answer

The answer of What is the level of consumption given...

Question 15

Present spending would not significantly change given a current one off wage bonus according to the:&#10;A) Permanent income theory&#10;B) Predictable income theory&#10;C) Present income theory&#10;D) Potential income theory

Accepted Answer

The answer of Present spending would not significantly change given...

Deck 21: Influences on Aggregate Demand: Consumption