Question 1

The vertical intercept of the consumption function equals ______ and the slope equals _____.

Accepted Answer

The vertical intercept of the consumption function represents autonomous consumption (i.e. consumption that is independent of income) and the slope of the consumption function represents the marginal propensity to consume (MPC), which is the change in consumption for a given change in income. Therefore, autonomous consumption is represented by the vertical intercept, and the MPC is represented by the slope.

Question 2

When housing prices decrease, household wealth _____, and consumption _____.

Accepted Answer

If housing prices decrease, household wealth decreases as the market value of their homes decreases. As a result, consumption decreases as households feel less wealthy and may be less likely to spend money.

Question 3

Historically speaking, a one-dollar decrease in household wealth will cause consumer spending to fall by:

Accepted Answer

Historically, the wealth effect has been a fall of three to seven percent, or $0.03 to $0.07 for every one-dollar decrease in household wealth.

Question 4

Data on after-tax income and consumption spending for the Adam Smith family are given below:  Based on these data, the Adam Smith family has a marginal propensity to consume equal to:

Accepted Answer

The answer of Data on after-tax income and consumption spending...

Question 5

Suppose the stock market crashed, wiping out $5 trillion of household wealth.Consistent with economic models based on historical trends, consumption spending might fall by as much as, but probably not more than:

Accepted Answer

Economic models suggest that consumption spending typically falls by about 3-7% of the loss in wealth. A $5 trillion loss would likely reduce consumption by around $150 billion to $350 billion, making $350 billion a reasonable upper estimate.

Question 6

The slope of the consumption function:

Accepted Answer

The slope of the consumption function is equal to the marginal propensity to consume (MPC), which is the fraction of each additional dollar of income that is spent on consumption. Therefore, D is the correct choice. Choices A and B are incorrect because a vertical slope would indicate that changes in income have no effect on consumption, while a horizontal slope would indicate that consumption is constant regardless of changes in income. Choice C is also incorrect because the slope of the consumption function can be any value, depending on the MPC.

Question 7

The tendency of changes in asset prices to affect spending on consumption goods is called the ______ effect.

Accepted Answer

The wealth effect refers to the tendency of changes in asset prices, such as stocks or housing, to affect consumer spending on goods and services. When asset prices rise, individuals may feel richer and thus increase their spending on consumption goods. Conversely, when asset prices fall, individuals may feel poorer and decrease their spending on goods and services.

Question 8

The two parts of the Keynesian consumption function are consumption that depends on ______ and consumption that depends on _____.

Accepted Answer

The Keynesian consumption function states that consumption can be divided into two parts: consumption that depends on disposable income and consumption that depends on factors other than disposable income. Disposable income is the income left over after taxes have been paid, and it is the primary determinant of consumption spending in the short run. The factors other than disposable income that affect consumption spending include wealth, interest rates, expectations about future income, and other macroeconomic factors.

Question 9

In the Keynesian model, consumption depends on:

Accepted Answer

In the Keynesian model, consumption depends on disposable income, as it is assumed that individuals will spend a portion of their income on goods and services. The other options listed do not directly affect consumption in the Keynesian model.

Question 10

The largest component of planned aggregate expenditure is:

Accepted Answer

Consumption is typically the largest component of planned aggregate expenditure because it includes spending by households on goods and services, which accounts for a significant portion of the overall economy. Investment, government purchases, and exports are also important components, but typically not quite as large as consumption.

Question 11

A decrease in stock prices alters the consumption function by:

Accepted Answer

A decrease in stock prices decreases the wealth of investors, which in turn decreases their disposable income and thus decreases their consumption. This leads to a decrease in the vertical intercept of the consumption function. The slope of the consumption function remains unchanged.

Question 12

If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ______ increase in consumption.

Accepted Answer

The marginal propensity to consume (MPC) is the fraction of a change in disposable income that is spent on consumption. In this case, the MPC is 0.75, which means that for every additional dollar of disposable income, 75 cents is spent on consumption.

To calculate the increase in consumption resulting from a $100 increase in disposable income, we can multiply the MPC by the change in income: 
MPC x Change in income = 0.75 x $100 = $75

Therefore, the correct answer is C) $75.

Question 13

As disposable income increases, consumption:

Accepted Answer

As disposable income increases, people have more money to spend, leading to an increase in consumption. This is known as the income effect, which suggests that people tend to spend more as their income increases. Therefore, choice A is the best answer.

Question 14

The consumption function is relationship between consumption and:

Accepted Answer

The consumption function represents the relationship between consumption and disposable income, indicating how much households plan to consume at different levels of disposable income.

Question 15

Changes in autonomous consumption could be the result of:

Accepted Answer

Changes in autonomous consumption shift the consumption function up or down. These shifts are typically caused by changes in wealth and much household wealth is held in housing.

Question 16

The portion of planned aggregate expenditure that is independent of output is called ______ expenditure.

Accepted Answer

Autonomous expenditure is the portion of planned aggregate expenditure that is not affected by changes in output or income. It includes factors such as government spending, investment, and exports.

Question 17

The marginal propensity to consume (mpc) is the:

Accepted Answer

The marginal propensity to consume (mpc) is the amount by which consumption increases when disposable income increases by $1. Therefore, the correct answer is B. Choice A, C, and D all relate to different concepts related to the MPC, but only B matches the definition given in the question.

Question 18

C + I^p + G + NX equals:

Accepted Answer

C + I^p + G + NX represents planned aggregate expenditure, which is the total planned spending in an economy, including consumption (C), planned investment (I^p), government spending (G), and net exports (NX).

Question 19

As disposable income decreases, consumption:

Accepted Answer

Disposable income is the income that remains after taxes and other necessary expenses have been deducted. As disposable income decreases, individuals have less money to spend on discretionary items, leading to a decrease in consumption.

Question 20

If consumption increases by $9 when disposable income increases by $10, the marginal propensity to consume (mpc) equals:

Accepted Answer

The marginal propensity to consume (mpc) is the change in consumption divided by the change in disposable income. Therefore, mpc = change in consumption/change in disposable income. In this case, we are given that consumption increases by $9 when disposable income increases by $10. Therefore, mpc = 9/10 = 0.9. The correct answer is B.

Quiz 11: Spending, Output, and Fiscal Policy

The vertical intercept of the consumption function equals __ and the slope equals _.

When housing prices decrease, household wealth _, and consumption _.

Historically speaking, a one-dollar decrease in household wealth will cause consumer spending to fall by:

Data on after-tax income and consumption spending for the Adam Smith family are given below: Based on these data, the Adam Smith family has a marginal propensity to consume equal to:

Suppose the stock market crashed, wiping out $5 trillion of household wealth.Consistent with economic models based on historical trends, consumption spending might fall by as much as, but probably not more than:

The slope of the consumption function:

The tendency of changes in asset prices to affect spending on consumption goods is called the ______ effect.

The two parts of the Keynesian consumption function are consumption that depends on __ and consumption that depends on _.

In the Keynesian model, consumption depends on:

The largest component of planned aggregate expenditure is:

A decrease in stock prices alters the consumption function by:

If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ______ increase in consumption.

As disposable income increases, consumption:

The consumption function is relationship between consumption and:

Changes in autonomous consumption could be the result of:

The portion of planned aggregate expenditure that is independent of output is called ______ expenditure.

The marginal propensity to consume (mpc) is the:

C + I^p + G + NX equals:

As disposable income decreases, consumption:

If consumption increases by $9 when disposable income increases by $10, the marginal propensity to consume (mpc) equals:

Quiz 11: Spending, Output, and Fiscal Policy

The vertical intercept of the consumption function equals ______ and the slope equals _____.

When housing prices decrease, household wealth _____, and consumption _____.

Historically speaking, a one-dollar decrease in household wealth will cause consumer spending to fall by:

Data on after-tax income and consumption spending for the Adam Smith family are given below: Based on these data, the Adam Smith family has a marginal propensity to consume equal to:

Suppose the stock market crashed, wiping out $5 trillion of household wealth.Consistent with economic models based on historical trends, consumption spending might fall by as much as, but probably not more than:

The slope of the consumption function:

The tendency of changes in asset prices to affect spending on consumption goods is called the ______ effect.

The two parts of the Keynesian consumption function are consumption that depends on ______ and consumption that depends on _____.

In the Keynesian model, consumption depends on:

The largest component of planned aggregate expenditure is:

A decrease in stock prices alters the consumption function by:

If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ______ increase in consumption.

As disposable income increases, consumption:

The consumption function is relationship between consumption and:

Changes in autonomous consumption could be the result of:

The portion of planned aggregate expenditure that is independent of output is called ______ expenditure.

The marginal propensity to consume (mpc) is the:

C + Ip + G + NX equals:

As disposable income decreases, consumption:

If consumption increases by $9 when disposable income increases by $10, the marginal propensity to consume (mpc) equals:

The vertical intercept of the consumption function equals __ and the slope equals _.

When housing prices decrease, household wealth _, and consumption _.

The two parts of the Keynesian consumption function are consumption that depends on __ and consumption that depends on _.

C + I^p + G + NX equals: