Question 1

A change in which of the following is least likely to cause a shift of the consumption function?
A) the saving rate
B) consumer expectations about future prices
C) household wealth
D) investment spending
E) the interest rate

Accepted Answer

Investment spending is not a component of the consumption function, so changes in investment spending are unlikely to cause a shift in the consumption function. The other options, including the saving rate, consumer expectations, household wealth, and interest rate, all directly affect consumption spending and can cause shifts in the consumption function.

Question 2

Changes in the price level will not shift the consumption function.

Accepted Answer

The answer of Changes in the price level will not...

Question 3

An increase in wealth will
A) increase consumption and saving at each level of income
B) increase saving and decrease consumption at each level of income
C) decrease consumption and saving at each level of income
D) increase consumption and decrease saving at each level of income
E) have no effect on consumption,since consumption is a function of income

Accepted Answer

With an increase in wealth, people tend to have a higher marginal propensity to consume, which means they will spend more and save less at each level of income. Therefore, an increase in wealth will lead to an increase in consumption and a decrease in saving.

Question 4

The slope of the consumption function shows how
A) consumption changes over time
B) consumption changes as household size changes
C) consumption changes as the price level changes
D) income changes as the level of consumption changes
E) consumption changes as the level of income changes

Accepted Answer

The slope of the consumption function shows how consumption changes as the level of income changes. As income increases, consumption also increases, but at a decreasing rate, which is reflected in the slope of the consumption function. The slope is calculated as the change in consumption divided by the change in income.

Question 5

What is the effect on the consumption function of a decrease in disposable income?
A) The consumption function shifts upward.
B) The consumption function shifts downward.
C) There is movement upward along the consumption function.
D) There is movement downward along the consumption function.
E) The consumption function becomes flatter.

Accepted Answer

A decrease in disposable income would lead to a decrease in consumption, resulting in a downward movement along the consumption function. This is because as disposable income decreases, individuals have less money to spend on consumption goods, leading to a decrease in overall consumption. Therefore, the consumption function shifts downward.

Question 6

Along the aggregate consumption function,an increase in income will
A) cause autonomous consumption to rise
B) shift the consumption function upward
C) cause a corresponding downward shift of the saving function
D) cause movement along the given consumption function
E) shift the consumption function downward

Accepted Answer

The answer of Along the aggregate consumption function,an increase in...

Question 7

If income rises from $6.0 trillion to $6.4 trillion,consumption rises from $5.5 trillion to $5.8 trillion.What is the slope of the aggregate expenditure line? (Assume there is neither international trade nor any government.)
A) 0.25
B) 0.33
C) 0.67
D) 0.75
E) 1.33

Accepted Answer

The answer of If income rises from $6.0 trillion to...

Question 8

An increase in the price level will
A) make the consumption function steeper
B) shift the consumption function downward
C) result in a movement upward along the consumption function
D) result in a movement downward along the consumption function
E) make the consumption function flatter

Accepted Answer

The answer of An increase in the price level will
A)...

Question 9

What is the effect on the consumption function of an increase in disposable income?
A) The consumption function shifts upward.
B) The consumption function shifts downward.
C) There is movement upward along the consumption function.
D) There is movement downward along the consumption function.
E) The consumption function becomes steeper.

Accepted Answer

The answer of What is the effect on the consumption...

Question 10

An increase in the price level will
A) increase consumption because goods are more expensive
B) make the consumption function steeper
C) increase consumption because wages will increase
D) decrease consumption because falling interest rates make it cheaper to borrow
E) decrease consumption because the value of net wealth has decreased

Accepted Answer

An increase in the price level will decrease consumption because the value of net wealth has decreased. As the price level increases, the value of assets such as savings, stocks, and real estate will decrease, leading to a decrease in consumers' net wealth. This decrease in net wealth will result in a decrease in consumption, as consumers are less willing and able to spend on goods and services.

Question 11

A decrease in the price level decreases net wealth and increases consumption spending.

Accepted Answer

A decrease in the price level may actually increase net wealth, as it may lead to an increase in the purchasing power of individuals' assets. Additionally, a decrease in the price level may lead to a decrease in consumption spending, as individuals may wait for prices to decrease further before making purchases. Therefore, the statement is false.

Question 12

A decrease in net wealth will
A) increase consumption and saving at each level of income
B) increase saving and decrease consumption at each level of income
C) decrease consumption and saving at each level of income
D) increase consumption and decrease saving at each level of income
E) have no effect on consumption,since consumption is a function of income

Accepted Answer

The answer of A decrease in net wealth will
A) increase...

Question 13

Expectations that the price level will rise in the future cause consumption to rise today.

Accepted Answer

When consumers expect prices to rise in the future, they are motivated to buy goods and services now before prices go up. This can lead to an increase in current consumption.

Question 14

Which of the following would not shift the consumption function?
A) a change in household wealth
B) a change in the price level
C) a change in household disposable income
D) a change in the level of unemployment
E) a change in the rate of interest

Accepted Answer

The answer of Which of the following would not shift...

Question 15

An increase in wealth will
A) shift the consumption function upward
B) make the consumption function steeper
C) cause a movement upward along the consumption function
D) cause a movement downward along the consumption function
E) make the consumption function flatter

Accepted Answer

The answer of An increase in wealth will
A) shift the...

Question 16

An upward shift of the consumption function might be caused by
A) an increase in disposable income
B) a decrease in disposable income
C) a decrease in the price level
D) a decrease in household wealth
E) an increase in the interest rate

Accepted Answer

The answer of An upward shift of the consumption function...

Question 17

A decrease in the price level will
A) shift the consumption function upward
B) make the consumption function steeper
C) result in a movement upward along the consumption function
D) result in a movement downward along the consumption function
E) have no effect on the consumption function

Accepted Answer

The answer of A decrease in the price level will
A)...

Question 18

A decrease in wealth will
A) shift the consumption function downward
B) make the consumption function steeper
C) cause a movement upward along the consumption function
D) cause a movement downward along the consumption function
E) make the consumption function flatter

Accepted Answer

The answer of A decrease in wealth will
A) shift the...

Question 19

An increase in the interest rate will increase consumption spending.

Accepted Answer

An increase in the interest rate typically leads to a decrease in consumption spending, as borrowing becomes more expensive and consumers are less likely to take out loans or use credit to make purchases.

Question 20

A decrease in the price level will
A) decrease consumption because the price of goods is lower
B) make the consumption function flatter
C) increase consumption because prices are wages,so people have more income
D) increase consumption because the value of wealth has increased
E) decrease consumption because rising interest rates make it more expensive to borrow

Accepted Answer

A decrease in the price level typically leads to an increase in the purchasing power of money, which makes people feel wealthier. This increase in wealth is likely to lead to an increase in consumption, particularly for those goods that are not affected by the price level. Therefore, option D, "increase consumption because the value of wealth has increased," is the best choice.

Quiz 9: Aggregate Expenditure

A change in which of the following is least likely to cause a shift of the consumption function?

Changes in the price level will not shift the consumption function.

An increase in wealth will

The slope of the consumption function shows how

What is the effect on the consumption function of a decrease in disposable income?

Along the aggregate consumption function,an increase in income will

If income rises from $6.0 trillion to $6.4 trillion,consumption rises from $5.5 trillion to $5.8 trillion.What is the slope of the aggregate expenditure line? (Assume there is neither international trade nor any government.)

An increase in the price level will

What is the effect on the consumption function of an increase in disposable income?

An increase in the price level will

A decrease in the price level decreases net wealth and increases consumption spending.

A decrease in net wealth will

Expectations that the price level will rise in the future cause consumption to rise today.

Which of the following would not shift the consumption function?

An increase in wealth will

An upward shift of the consumption function might be caused by

A decrease in the price level will

A decrease in wealth will

An increase in the interest rate will increase consumption spending.

A decrease in the price level will