Deck 42: Consumer Spending and Labor Income

Question 1

Whats defention of terms:
-average propensity to consume

Answer 1

the proportion of income spent for consumption

Question 2

Whats defention of terms:
-average propensity to save

Answer 2

the proportion of savings to income

Question 3

Whats defention of terms:
-consumption function

Answer 3

Keynesian schedule of aggregate consumer spending at different income levels; as income increases consumption increases by some fraction

Question 4

Whats defention of terms:
-dis-saving

Question 5

Whats defention of terms:
-marginal propensity to consume

Question 6

Whats defention of terms:
-marginal propensity to save

Question 7

Whats defention of terms:
-savings

Question 8

Explain how consumption has grown over the long run.
-Even though labor income stagnated after 1970, consumer spending rose. Explain.

Question 9

Explain how consumption has grown over the long run.
-How does wealth and debt affect spending?

Question 10

Describe how consumption behaves over the business cycle.
-Define average propensity to consume, average propensity to save, marginal propensity to consume, marginal propensity to save.

Question 11

Describe how consumption behaves over the business cycle.
-Why does a decline in the labor share cause a decline in the propensity to consume for the average of all consumers?

Question 12

Describe how consumption behaves over the business cycle.
-Why does the labor share decline as economic expansion continues?

Question 13

Describe how consumption behaves over the business cycle.
-Why does the ratio of consumer debt to income rise during the average expansion?

Question 14

Compare and discuss determinants of aggregate consumption.
-Why do people purchase less if they have less wealth, even if their income remains constant?

Question 15

Compare and discuss determinants of aggregate consumption.
-How does aggregate consumption behave over the business cycle?

Question 16

Keynes believed that consumer demand in the aggregate is determined primarily by

A) the interest rate.
B) the rate of inflation.
C) national income.
D) government spending.

Question 17

At very low levels of income, consumer spending is likely to

A) be less than income
B) be greater than income
C) be the same as income
D) be the same as savings.

Question 18

The term, "dis-saving" means

A) having no respect for savings.
B) drawing money out of savings.
C) putting money into savings.
D) not saving at all.

Question 19

Those who currently have no savings and have no income

A) are unable to consume.
B) will go into debt in order to consume.
C) have a zero marginal propensity to consume.
D) will increase their level of savings.

Question 20

The wealthy tend to have

A) higher average propensities to consume
B) higher average propensities to save.
C) lower average propensities to save.
D) the same average propensity to consume as less wealth persons.

Question 21

A shift in income distribution from wealthy individuals to poor individuals is likely to

A) increase consumer debt.
B) increase the national propensity to consume.
C) leave the national propensity to consume unchanged.
D) decrease the national propensity to consume.

Question 22

In an economic expansion, the average ratio of consumption to income (APC)

A) increases
B) decreases
C) stays the same
D) could either increase or decrease.

Question 23

What is the definition of the term, "labor share?"

A) it is the share of labor costs in a firm's total costs.
B) it is the share of labor income in national income.
C) it is the share of federal taxes paid by employees rather than by capitalists.
D) It is the share in total business revenues that employees receive.

Question 24

Consumer debt as a percentage of national income in the cycle 1991 to 2001 was approximately

A) 22%
B) 52%
C) 72%
D) 92%

Question 25

What is the wealth effect?

A) the tendency for many individuals to copy the consumption patterns of the wealthy.
B) the tendency for increases in wealth to lead to increases in savings.
C) the tendency for increases in wealth to lead to increases in consumption.
D) the tendency for the wealthy to willingly share their good fortune with the less well off.

Question 26

Assume that Sam has $2000 in savings and a car worth about $10,000. He owes $9,000 on his car and $3000 on his credit card. What is Sam's wealth?

A) $2,000
B) $12,000
C) 0
D) -$1,000

Question 27

Brad and Angie own a nice house worth $400,000. They have 2 cars worth $20,000 each, and $5,000 in the bank. They recently borrowed $100,000 on their house in order to send their daughter, Jennifer, to college. They also gave Jennifer a credit card for her expenses, and the balance is now $10,000. How much wealth do Brad and Angie have?

A) $330,000
B) $445,000
C) $110,000
D) $525,000

Question 28

Why consumers tend to purchase less if they have less wealth (or more debt), even if their income remains constant?

A) consumers are irrational.
B) consumers may feel richer, so they increase their savings in order to emulate the wealthy.
C) consumers may feel poorer, so they want to increase their savings.
D) consumers may already have bought all they want.

Question 29

Diagram 42a

-Diagram 42a indicates that

A) consumption increases faster than income.
B) income is always less than consumption.
C) consumption is always less than income.
D) income increases faster than consumption.

Question 30

Diagram 42a

-Diagram 42a indicates that

A) consumption is unrelated to income.
B) consumption is positively related to income.
C) consumption is inversely related to income.
D) consumption is constant.

Question 31

Diagram 42a

-Diagram 42a indicates that when income is greater than $6,000

A) consumers are spending more than income.
B) consumers are not spending.
C) consumers are spending less than income.
D) consumers are spending exactly all of their income.