Question 1

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to save equal when real disposable income equals $14,000?
A) 0.09
B) 0.7
C) 0.91
D) 1.1

Accepted Answer

The answer of 
-Refer to the above table. The table...

Question 2

Which of the following is false?
A) APC + MPS = 1
B) MPC + MPS = 1
C) 1 - APC = APS
D) APC + APS = 1

Accepted Answer

APC is the average propensity to consume, and MPS is the marginal propensity to save. The sum of APC and MPS is always equal to 1, as all income is either consumed or saved.

Question 3

An increase in autonomous consumption means that
A) the consumption function shifts down.
B) the consumption function shifts up.
C) the consumption function becomes steeper.
D) the consumption function becomes less steep.

Accepted Answer

Autonomous consumption is the amount of consumption that occurs even when a person has no disposable income. If autonomous consumption increases, then at every level of disposable income, people will consume more. This will shift the consumption function up, since there is more consumption at every level of income.

Question 4

Another way of stating that investment is independent of real disposable income is to say that it is
A) inversely related.
B) directly related.
C) complementary.
D) autonomous.

Accepted Answer

Autonomous means the investment is not influenced by real disposable income. It is independent of changes in income levels, and hence the correct answer is D.

Question 5

The consumption function shows the relationship between
A) interest rates and planned real consumption.
B) employment and planned real consumption.
C) the price level and planned real consumption.
D) real disposable income and planned real consumption.

Accepted Answer

The consumption function shows the relationship between real disposable income and planned real consumption. This means that as real disposable income increases, planned real consumption also increases, indicating a positive correlation between the two variables. This relationship is typically represented by the consumption function: C = a + bY, where C is consumption, Y is real disposable income, a is autonomous consumption, and b is the marginal propensity to consume (MPC).

Question 6

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to save when real disposable income equals $4,000?
A) -0.45
B) 0.69
C) 0.7
D) 1.45

Accepted Answer

The answer of 
-Refer to the above table. The table...

Question 7

Suppose autonomous consumption decreases. This reduction in autonomous consumption will cause which of the following to occur?
A) The consumption function shifts down.
B) The consumption function shifts up.
C) The consumption function becomes steeper.
D) The consumption function becomes less steep.

Accepted Answer

Autonomous consumption is the fixed portion of consumption that does not respond to changes in income. Therefore, a decrease in autonomous consumption will lead to a decrease in total consumption at each level of income. This means that the consumption function shifts downward.

Question 8

The stock of assets owned by a person, household, firm or nation is
A) real disposable income.
B) wealth.
C) capital investment.
D) capital goods.

Accepted Answer

Wealth refers to the stock of assets owned by a person, household, firm or nation. Real disposable income is the income after taxes and inflation that is available to spend or save. Capital investment refers to the purchase of goods that are used in production, while capital goods are the actual goods that have been purchased and used in production.

Question 9

Which one of the following is true?
A) APC + MPS = 1
B) APC + APS = 1
C) MPS + APS = 1
D) APC * APS = 1

Accepted Answer

APC (average propensity to consume) is the ratio of consumption expenditure to total income while APS (average propensity to save) is the ratio of saving to total income. Therefore, APC + APS = 1. MPS (marginal propensity to save) is the change in savings resulting from a change in income while keeping consumption constant, and it is not directly related to the equation. D is not correct because APC and APS are ratios and multiplying them would not result in 1.

Question 10

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to consume when real disposable income equals $4,000?
A) -0.45
B) 0.69
C) 0.7
D) 1.45

Accepted Answer

The answer of 
-Refer to the above table. The table...

Question 11

If the average propensity to consume is initially 1.0, the marginal propensity to consume is 0.75, and real disposable income increases by $1000, the new value of saving is
A) 0.
B) $250.
C) $750.
D) $1000.

Accepted Answer

When the average propensity to consume is 1.0, all income is consumed, so initial saving is $0. With a marginal propensity to consume of 0.75, $750 of the additional $1000 income is consumed, leaving $250 as saving.

Question 12

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to consume when real disposable income equals $14,000?
A) 0.09
B) 0.7
C) 0.91
D) 1.1

Accepted Answer

The answer of 
-Refer to the above table. The table...

Question 13

Which one of the following statements is true?
A) In the classical model, the supply of saving is determined by the rate of interest.
B) In the classical model, the supply of saving is determined by the level of income.
C) In the Keynesian model, the supply of saving is determined by the rate of interest.
D) In the Keynesian model, the supply of saving is determined by the level of investment.

Accepted Answer

In the classical model, the supply of saving is determined by the rate of interest, as individuals will be more willing to save at higher interest rates. This is based on the assumption that savings are determined by intertemporal decisions, where individuals decide how much to consume and how much to save based on the expected future returns on their investments.

Question 14

-In the above table, the level of autonomous consumption is
A) $0.
B) $1,000.
C) $5,000.
D) $9,000.

Accepted Answer

The answer of 
-In the above table, the level of...

Question 15

Which of the following is false?
A) 1 - MPC = MPS
B) 1 + MPC = MPS
C) 1 - APS = APC
D) APC + APS = 1

Accepted Answer

The correct relationship is 1 - MPC = MPS, not 1 + MPC = MPS.

Question 16

The relationship that tells us how much a person intends to spend at various levels of income is
A) the spending function.
B) the expenditure function.
C) the consumption function.
D) the buying function.

Accepted Answer

The consumption function is the relationship that tells us how much a person intends to spend at various levels of income. The other choices are not accurate in describing this relationship.

Question 17

Which of the following statements is true?
A) APC + APS = 1
B) APC + APS < 1
C) APC + MPS = 1
D) APC + APS + MPC + MPS = 1

Accepted Answer

APC (Average Propensity to Consume) + APS (Average Propensity to Save) = 1 because the total income is either consumed or saved.

Question 18

Which of the following is true?
A) APC + MPS = 1
B) MPC + MPS = 1
C) 1 + APC = APS
D) APC - APS = 1

Accepted Answer

MPC (marginal propensity to consume) is the change in consumption resulting from a change in income, while MPS (marginal propensity to save) is the change in savings resulting from a change in income. Since all income is either consumed or saved, it follows that MPC + MPS = 1. Option B fits this equation.

Question 19

The part of consumption that is independent of disposable income is called
A) automatic consumption.
B) fixed consumption.
C) personal consumption.
D) autonomous consumption.

Accepted Answer

Autonomous consumption refers to the minimum level of consumption that an individual or household will engage in, regardless of their disposable income. This is often the case with basic needs such as food, shelter, and utilities, which are deemed as necessities and cannot be easily cut back on.

Question 20

The average price of a share of stock on the New York Stock Exchange falls by 30 percent. Other things being equal, we would expect
A) an increase in the marginal propensity to consume.
B) a decrease in the marginal propensity to consume.
C) a shift up of the consumption function.
D) a shift down of the consumption function.

Accepted Answer

The answer of The average price of a share of...

Quiz 12: Consumption, Real GDP, and the Multiplier

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to save equal when real disposable income equals $14,000?

Which of the following is false?

An increase in autonomous consumption means that

Another way of stating that investment is independent of real disposable income is to say that it is

The consumption function shows the relationship between

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to save when real disposable income equals $4,000?

Suppose autonomous consumption decreases. This reduction in autonomous consumption will cause which of the following to occur?

The stock of assets owned by a person, household, firm or nation is

Which one of the following is true?

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to consume when real disposable income equals $4,000?

If the average propensity to consume is initially 1.0, the marginal propensity to consume is 0.75, and real disposable income increases by $1000, the new value of saving is

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to consume when real disposable income equals $14,000?

Which one of the following statements is true?

-In the above table, the level of autonomous consumption is

Which of the following is false?

The relationship that tells us how much a person intends to spend at various levels of income is

Which of the following statements is true?

Which of the following is true?

The part of consumption that is independent of disposable income is called

The average price of a share of stock on the New York Stock Exchange falls by 30 percent. Other things being equal, we would expect