Question 1

Suppose when real disposable income is $5000,planned real consumption is $4000.When real disposable income increases to $6000,planned real saving increases by $500.The new planned real consumption expenditures is
A)$5,000.
B)$4,500.
C)$6,000.
D)$3,500.

Accepted Answer

- When real disposable income increases from $5000 to $6000, the increase in income is $1000.
- We know that the increase in planned real saving is $500. Therefore, the increase in planned real consumption must be $1000-$500=$500.
- The new planned real consumption expenditures will be the old planned real consumption plus the increase in planned real consumption, which is $4000+$500=$4500. Therefore, the answer is B.

Question 2

-In the above figure,a change in autonomous consumption to 100 would cause the consumption function to
A)become steeper.
B)become flatter.
C)shift down.
D)shift up.

Accepted Answer

A change in autonomous consumption to 100 would shift the entire consumption function up, but the slope of the function would not change. Therefore, the correct choice is D, which indicates a shift up in the consumption function.

Question 3

-According to the above figure,at an income level of Y1,
A)the economy saves an amount equal to BD.
B)the marginal propensity to save is falling.
C)the average propensity to save is greater than one.
D)the economy dissaves an amount equal to BD.

Accepted Answer

At an income level of Y1, the consumption line is above the 45-degree line (which represents income), indicating that consumption is greater than income. This means the economy is dissaving, not saving, by the amount represented by the distance BD.

Question 4

When a family's income is low and it is spending more on consumption than it is receiving in income,
A)the APC must be increasing.
B)the APC must be equal to the ratio of planned consumption expenditure to total saving.
C)the MPC must be zero.
D)some segment of the consumption function curve lies above the 45-degree line,indicating dissaving.

Accepted Answer

When a family's income is low and it is spending more on consumption than it is receiving in income, it is engaging in dissaving. This means that some segment of the consumption function curve lies above the 45-degree line, indicating that the family is spending more than its income. Therefore, choice D is the best answer. The APC and MPC may not necessarily be increasing or equal to the ratio of planned consumption expenditure to total saving in this scenario.

Question 5

At the break-even point for the consumption function
A)saving is positive.
B)saving is negative.
C)saving is zero.
D)the marginal propensity to consume equals l.

Accepted Answer

At the break-even point, the level of income is such that the amount of total income equals total consumption. This means that there is no saving or dis-saving (negative saving) taking place, hence the saving is zero.

Question 6

-According to the above figure,the average propensity to save (APS)is zero at point
A)D.
B)F.
C)I.
D)J.

Accepted Answer

At point F, the consumption expenditure is equal to income which means that there is no saving (S=0). Therefore, the APS (APS=S/Y) will be zero at point F.

Question 7

-According to the above table,if real Gross Domestic Product (GDP)is $30,000,planned saving equals
A)$2,000.
B)$3,000.
C)$4,000.
D)$5,000.

Accepted Answer

The answer of 
-According to the above table,if real Gross...

Question 8

-According to the above table,the marginal propensity to consume is
A)0.6.
B)0.5.
C)0.75.
D)0.8.

Accepted Answer

The answer of 
-According to the above table,the marginal propensity...

Question 9

According to Keynes,
A)consumption is positively related to the interest rate.
B)consumption is directly related to income but saving is inversely related to income.
C)both consumption and saving are positively related to real disposable income.
D)consumption is directly related to income but saving has no relationship with income.

Accepted Answer

The answer of According to Keynes,
A)consumption is positively related to...

Question 10

If saving equals $200 when real disposable income equals $1,000,the break-even income is
A)less than $1,000.
B)greater than $1,000.
C)equal to $1,000.
D)equal to $1,200.

Accepted Answer

The answer of If saving equals $200 when real disposable...

Question 11

-According to the above table,if real Gross Domestic Product (GDP)equals $30,000,what is the average propensity to consume?
A)0.67
B)0.75
C)0.8
D)0.87

Accepted Answer

The average propensity to consume (APC) is calculated by dividing consumption by the level of income (or GDP). If real GDP equals $30,000, and assuming from the given options that consumption at this income level corresponds to an APC of 0.75, it means that 75% of the income is being consumed. This is a direct calculation based on the definition of APC, which is the ratio of total consumption to total income.

Question 12

The life-cycle theory of consumption predicts that when a person anticipates a higher income in the future,then that person will
A)consume more and save less in the current period.
B)consume less and save more in the current period.
C)consume less and save less in the current period.
D)not change the amount of consumption or saving in the current period.

Accepted Answer

The life-cycle theory of consumption posits that individuals plan their spending and saving behavior over their lifetime in order to maintain a relatively constant standard of living. When someone anticipates a higher income in the future, they would consume more in the present and save less. This is because they expect to have a higher income and therefore a higher standard of living in the future, which they can sustain even if they consume more now.

Question 13

In the graph for the consumption function,the 45-degree line
A)contains only a consumption component.
B)represents both planned consumption and planned investment.
C)shows various combinations where planned consumption equals real disposable income.
D)reflects a decreasing APC as real disposable income rises.

Accepted Answer

The 45-degree line represents the points where planned consumption equals real disposable income. Therefore, it's showing various combinations where planned consumption equals real disposable income.

Question 14

Suppose real disposable income increases by $1,000.Given this information,we know that
A)consumption will generally increase by exactly $1,000.
B)consumption will generally increase by less than $1,000.
C)consumption will generally increase by more than $1,000.
D)saving will generally increase by exactly $1,000.

Accepted Answer

Consumption may increase by less than $1,000 as individuals may choose to save some of their additional income. The exact amount of consumption increase will depend on the marginal propensity to consume (MPC), which is the fraction of each additional dollar of income that is spent on consumption. If the MPC is less than 1, then consumption will increase by less than the increase in income.

Question 15

-In the above figure,when disposable income is greater than 600,
A)saving is negative.
B)the MPC is greater than 1.
C)saving is positive.
D)the MPS is negative.

Accepted Answer

When disposable income is greater than 600, saving is positive because it indicates that income exceeds consumption, allowing for savings.

Question 16

-In the above figure,the marginal propensity to consume (MPC)equals
A)0.8.
B)0.9.
C)0.75.
D)0.85.

Accepted Answer

The answer of 
-In the above figure,the marginal propensity to...

Question 17

The break-even point on the consumption function represents the point where
A)consumption equals spending.
B)income equals consumption plus spending.
C)consumption is zero.
D)consumption equals income.

Accepted Answer

The break-even point on the consumption function represents the point where consumption equals income. This means that an individual or the economy as a whole is not saving any money, but also not borrowing or running a deficit. At this point, total spending equals total income.

Question 18

The consumption function shows how much
A)households plan to consume per year at each level of real disposable income.
B)households plan to consume per year at each possible interest rate.
C)real disposable income people will earn at each income tax bracket.
D)households plan to consume per year at each level of savings.

Accepted Answer

The consumption function shows how much households plan to consume per year at each level of real disposable income. It is a relationship between consumption and income, assuming all other factors remain constant.

Question 19

-According to the above figure,planned consumption and income are equal at an income level of
A)Y2.
B)Y3.
C)Y1.
D)Y0.

Accepted Answer

The answer of 
-According to the above figure,planned consumption and...

Question 20

When consumption spending is greater than disposable income,we know with certainty that we have
A)dissaving.
B)excess thrift.
C)positive savings.
D)negative net investment.

Accepted Answer

If consumption spending is greater than disposable income, it means that individuals are spending more than they are earning, resulting in negative savings or dissaving. This is reflected in the negative value of the savings rate, which is calculated as the difference between disposable income and consumption spending. Excess thrift and positive savings, on the other hand, would indicate that individuals are saving more than they are spending which is the opposite situation. Negative net investment is not related to this scenario as it pertains to the overall investment made in the economy by individuals or entities, and is not a measure of savings.

Quiz 12: Consumption, real GDP, and the Multiplier

Suppose when real disposable income is $5000,planned real consumption is $4000.When real disposable income increases to $6000,planned real saving increases by $500.The new planned real consumption expenditures is

-In the above figure,a change in autonomous consumption to 100 would cause the consumption function to

-According to the above figure,at an income level of Y1,

When a family's income is low and it is spending more on consumption than it is receiving in income,

At the break-even point for the consumption function

-According to the above figure,the average propensity to save (APS) is zero at point

-According to the above table,if real Gross Domestic Product (GDP) is $30,000,planned saving equals

-According to the above table,the marginal propensity to consume is

According to Keynes,

If saving equals $200 when real disposable income equals $1,000,the break-even income is

-According to the above table,if real Gross Domestic Product (GDP) equals $30,000,what is the average propensity to consume?

The life-cycle theory of consumption predicts that when a person anticipates a higher income in the future,then that person will

In the graph for the consumption function,the 45-degree line

Suppose real disposable income increases by $1,000.Given this information,we know that

-In the above figure,when disposable income is greater than 600,

-In the above figure,the marginal propensity to consume (MPC) equals

The break-even point on the consumption function represents the point where

The consumption function shows how much

-According to the above figure,planned consumption and income are equal at an income level of

When consumption spending is greater than disposable income,we know with certainty that we have