Question 1

If disposable income rises by $100 billion and personal consumption expenditure rises by $60 billion,what is the average propensity to consume?
A) 0.60
B) 0.40
C) -0.40
D) -1.00
E) impossible to calculate from these figures

Accepted Answer

E

Question 2

If a family's disposable income is $100,000 and the amount it saves is $35,000,its
A) average propensity to consume is 0.65.
B) marginal propensity to save is 0.53.
C) marginal propensity to consume is 0.65.
D) marginal plus average propensities to consume equal 1.
E) average propensity to consume is 1.53.

Accepted Answer

The average propensity to consume (APC) is calculated as the ratio of consumption to disposable income. If the family saves $35,000, it consumes $65,000 ($100,000 - $35,000). Thus, APC = $65,000 / $100,000 = 0.65.

Question 3

The average propensity to consume is the
A) fraction of an extra dollar of GDP that becomes disposable income.
B) share of GDP spent by households and businesses.
C) proportion of an extra dollar of disposable income that is spent on consumption.
D) percentage of disposable income that is consumed.
E) reciprocal of the marginal propensity to consume.

Accepted Answer

The average propensity to consume (APC) is defined as the percentage of disposable income that is consumed, which means it measures the proportion of income that individuals spend on goods and services rather than saving.

Question 4

The saving function assumes that personal saving depends primarily on
A) interest rates.
B) the amount of investment.
C) the difference between the average and marginal propensities to consume.
D) disposable income.
E) the unemployment rate.

Accepted Answer

The saving function assumes that personal saving depends primarily on disposable income, as higher incomes generally lead to higher levels of saving. Interest rates, investment, the difference between the average and marginal propensities to consume, and the unemployment rate may all have an influence on personal saving, but they are not the primary factors on which the saving function is based.

Question 5

The slope of the consumption function is equal to the
A) average propensity to consume.
B) marginal propensity to consume.
C) rate of interest.
D) saving function.
E) multiplier.

Accepted Answer

The slope of the consumption function represents the change in consumption for a unit change in income. The marginal propensity to consume (MPC) represents the change in consumption for a unit change in income, therefore the slope of the consumption function is equal to the MPC.

Question 6

If disposable income rises by $100 billion and personal consumption expenditure rises by $60 billion,what is the marginal propensity to consume?
A) 0.60
B) 0.40
C) 1.60
D) 1.66
E) 2.50

Accepted Answer

The marginal propensity to consume (MPC) is calculated by dividing the change in personal consumption expenditure by the change in disposable income. Here, MPC = $60 billion / $100 billion = 0.60.

Question 7

The consumption function expresses the relationship between consumption spending and
A) investment spending.
B) aggregate supply.
C) disposable income.
D) savings.
E) the 45-degree line.

Accepted Answer

The consumption function relates consumption spending to disposable income. This relationship is typically depicted graphically as a line with disposable income on the x-axis and consumption on the y-axis. As disposable income increases, consumption generally increases but at a diminishing rate.

Question 8

If Carolyn's consumption rises by $5,000 as her income increases from $26,000 to $32,000 per year,her marginal propensity to consume is
A) 0.16.
B) 19.
C) 0.83.
D) 1.20.
E) impossible to determine from the data.

Accepted Answer

Marginal propensity to consume (MPC) is the ratio of the change in consumption to the change in income.

MPC = ΔC / ΔY

Here, Carolyn's consumption rises by $5,000 as her income increases from $26,000 to $32,000 per year.

So, 
ΔC = $5,000 
ΔY = $32,000 - $26,000 = $6,000

MPC = ΔC / ΔY = $5,000 / $6,000 = 0.83

Therefore, the answer is C, 0.83.

Question 9

The relationship between household spending and disposable income is known as the
A) investment function.
B) multiplier.
C) gross domestic product.
D) consumption function.
E) saving function.

Accepted Answer

The relationship between household spending and disposable income is described as the consumption function. It is a way of characterizing how much people spend based on how much money they have available to them in their disposable income after accounting for taxes and other expenses.

Question 10

The additional amount a family spends on consumption from an additional dollar of disposable income is called the
A) saving function.
B) marginal propensity to save.
C) multiplier.
D) marginal propensity to consume.
E) average propensity to consume.

Accepted Answer

The additional amount a family spends on consumption from an additional dollar of disposable income is called the marginal propensity to consume (MPC). This is the proportion of additional income that is spent on consumption, meaning that the higher the MPC, the more the family is likely to spend rather than save.

Question 11

If disposable income rises by $100 billion and personal consumption expenditure rises by $60 billion,what is the marginal propensity to save?
A) 0.60
B) 0.40
C) -0.40
D) -1.50
E) impossible to calculate from these figures

Accepted Answer

The marginal propensity to save is the ratio of the change in savings to the change in disposable income. In this case, the change in disposable income is $100 billion and the change in personal consumption expenditure is $60 billion, so the change in savings must be $40 billion (since disposable income = consumption + saving). Therefore, the marginal propensity to save is 40/100 = 0.40.

Question 12

The marginal propensity to consume is the
A) fraction of an extra dollar of GDP that becomes disposable income.
B) share of GDP spent by households and businesses.
C) proportion of an extra dollar of disposable income that is spent on consumption.
D) reciprocal of the average propensity to consume.
E) fraction of disposable income that is consumed.

Accepted Answer

The marginal propensity to consume refers to the proportion of an extra dollar of disposable income that is spent on consumption. It is usually expressed as a decimal or a fraction. For example, if the marginal propensity to consume is 0.75, it means that for each additional dollar of disposable income, 75 cents will be spent on consumption.

Question 13

Which of the following best expresses the relationship between the marginal propensity to consume (MPC )and the average propensity to consume (APC )?
A) The APC equals 1 minus the MPC.
B) The APC equals the change in personal consumption divided by the change in disposable income; the MPC is the proportion of disposable income consumed.
C) The APC is the proportion of total income consumed; the MPC is the proportion of the additional income consumed.
D) The APC can never exceed the value 1; the MPC can exceed 1 at low income levels.
E) The MPC deals with the consumption behavior of a household; the APC deals with the consumption behavior of society.

Accepted Answer

C) The APC is the proportion of total income consumed; the MPC is the proportion of the additional income consumed.

Question 14

The following question are based on the following information for a society:
 
-If disposable income is $1,800 billion,the average propensity to consume is
A) 0.8.
B) 0.84.
C) 0.92.
D) 1.00.
E) 1.08.

Accepted Answer

The average propensity to consume (APC) is calculated by dividing total consumption by total disposable income. If the APC is 0.92, it means that 92% of the disposable income is spent on consumption.

Question 15

One minus the marginal propensity to consume equals
A) the average propensity to consume.
B) the multiplier.
C) the marginal propensity to save.
D) the expected rate of return.
E) disposable income.

Accepted Answer

By definition, the marginal propensity to consume (MPC) is the fraction of a change in income that is spent on consumption. Therefore, one minus the MPC would represent the fraction of a change in income that is saved, which is known as the marginal propensity to save (MPS). Therefore, the correct answer is C.

Question 16

The average propensity to consume equals the
A) change in personal consumption expenditures divided by the current level of consumption expenditures.
B) amount spent on consumption divided by the amount of disposable income.
C) change in personal consumption expenditures divided by the change in disposable income.
D) personal consumption expenditures divided by personal saving.
E) sum of personal consumption expenditures and disposable income divided by 2.

Accepted Answer

The average propensity to consume (APC) is defined as the amount spent on consumption divided by the amount of disposable income. It measures the proportion of total income that is spent on consumption. Therefore, choice B is the correct answer. Choice A is incorrect because it compares a change in consumption to the current level of consumption. Choice C is incorrect because it compares a change in consumption to a change in disposable income, not the current level of disposable income. Choice D is incorrect because it compares consumption to saving, which is not relevant to calculating the APC. Choice E is incorrect because it does not take into account the difference between consumption and disposable income.

Question 17

In national output determination theory,personal consumption expenditures depend primarily on
A) the amount of net investment.
B) the expected rate of return.
C) disposable income.
D) the difference between the average and marginal propensities to consume.
E) the aggregate demand curve.

Accepted Answer

Personal consumption expenditures depend primarily on disposable income, which is the income that households have after paying taxes. As disposable income increases, households have more money to spend on goods and services, leading to an increase in personal consumption expenditures. Other factors, such as interest rates and consumer confidence, can also affect personal consumption expenditures, but disposable income is the primary determinant.

Question 18

The following question are based on the following information for a society:
 
-If disposable income increases from $1,900 to $2,000 billion,the marginal propensity to consume is
A) 0.8.
B) 0.84.
C) 0.92.
D) 1.0.
E) 1.08.

Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in disposable income. If the MPC is 0.8, it means that for every additional dollar of income, consumption increases by 80 cents.

Question 19

Another name for the income expenditure model is the
A) classical model.
B) consumption propensities model.
C) paradox of thrift.
D) production possibilities model.
E) Keynesian model.

Accepted Answer

The income expenditure model is also known as the Keynesian model, named after economist John Maynard Keynes, who developed the model. The model is used to analyze how changes in spending by households, businesses, and the government can affect overall economic activity.

Question 20

The following question are based on the following information for a society:
 
-If disposable income is $1,900 billion,saving is ________ billion.
A) $16
B) $20
C) $144
D) $160
E) $180

Accepted Answer

The answer of The following question are based on the...

Quiz 17: The Determination of National Output and the Keynesian Multiplier

If disposable income rises by $100 billion and personal consumption expenditure rises by $60 billion,what is the average propensity to consume?

If a family's disposable income is $100,000 and the amount it saves is $35,000,its

The average propensity to consume is the

The saving function assumes that personal saving depends primarily on

The slope of the consumption function is equal to the

If disposable income rises by $100 billion and personal consumption expenditure rises by $60 billion,what is the marginal propensity to consume?

The consumption function expresses the relationship between consumption spending and

If Carolyn's consumption rises by $5,000 as her income increases from $26,000 to $32,000 per year,her marginal propensity to consume is

The relationship between household spending and disposable income is known as the

The additional amount a family spends on consumption from an additional dollar of disposable income is called the

If disposable income rises by $100 billion and personal consumption expenditure rises by $60 billion,what is the marginal propensity to save?

The marginal propensity to consume is the

Which of the following best expresses the relationship between the marginal propensity to consume (MPC ) and the average propensity to consume (APC ) ?

The following question are based on the following information for a society: -If disposable income is $1,800 billion,the average propensity to consume is

One minus the marginal propensity to consume equals

The average propensity to consume equals the

In national output determination theory,personal consumption expenditures depend primarily on

The following question are based on the following information for a society: -If disposable income increases from $1,900 to $2,000 billion,the marginal propensity to consume is

Another name for the income expenditure model is the

The following question are based on the following information for a society: -If disposable income is $1,900 billion,saving is ________ billion.