Question 8Which of the following is correct as an interpretation of the Keynesian consumption function?None of the others is correctO The Keynesian consumption function implies that your consumption depends on your overall wealth, ratherthan your current income.O The Keynesian consumption function states that as income increases consumption increases more thanproportionately.The Keynesian consumption function is consistent with the observation that consumption can increase evenif disposable income remains the same.The Keynesian consumption function predicts that if your current income is less than your expected futureincome, you should borrow today to finance your current consumption needs.

Keynes Consumption function: C = c + MPC * Yd => C = c + MPC * (Y-T) Where C -> consumption c…

Which of the following is correct as an interpretation of the Keynesian consumption function? None of the others is correct The Keynesian consumption function implies that your consumption depends on your overall wealth, rathe than your current income. O The Keynesian consumption function states that as income increases consumption increases more than nronortionntelu

Which of the following is correct as an interpretation of the Keynesian consumption function? None of the others is correct The Keynesian consumption function implies that your consumption depends on your overall wealth, rathe than your current income. O The Keynesian consumption function states that as income increases consumption increases more than nronortionntelu

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

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Which of the following is correct as an interpretation of the Keynesian consumption function? None of the others is correct O The Keynesian consumption function implies that your consumption depends on your overall wealth, rather than your current income. The Keynesian consumption function states that as income increases consumption increases more than proportionately. O The Keynesian consumption function is consistent with the observation that consumption can increase even if disposable income remains the same. O The Keynesian consumption function predicts that if your current income is less than your expected future income, you should borrow today to finance your current consumption needs.
One of these four answers best explains the effect of disposable income on consumption. Which one? O Disposable income does not determine consumption. O Disposable income is the most powerful determinant of income and determines how much an individual consumes. O When an individual has more disposable income, he or she is likely to consume less. O Disposable income is an important determinant of expected future income.
An increase in interest rates shifts the Investment Demand curve up and increases Business Investment Expenditures. O True O False Households' autonomous savings is exactly the same as autonomous consumption. O True O False An increase in households' wealth will increase the marginal propensity to consume. O True O False Private-Sector Savings equal Consumption Expenditures at the Break-Even Disposable Income. True O False In National Income Accounting, an increase in unplanned inventory increases actual business investment expenditures (la). O True O False
In the following scenario, identify the correct sequence of events. If there is a $1 decrease in autonomous spending, the equilibrium output decreases by more than $1. This is because, a decrease in spending leads to O run down in inventories, decrease in production, less income, less spending O accumulation of inventories, decrease in production, less income, less spending O less output, change in planned investment and consumption O lower spending, lower consumption O lower income, lower planned investment
The Life-Cycle/Permanent Income Model of Consumption makes a different prediction from the Keynesian Model, about how Consumption reacts to an increase in current income. Which of the following is the best description of the difference? O In the Keynesian Model, consumers will increasktheir spending by the mpc times the increase in income. In the Life-Cycle/Permanent Income Model, consumers will not increase their spending by much unless they believe that the increase in their income is permanent. O In the Life-Cycle/Permanent Income Model, consumers will increase their spending by the mpc times the increase in income. In the Keynesian Model, consumers will only increase their spending if they believe that the increase in their income is temporary. O In the Keynesian Model, consumers will increase their spending by the mpc times the increase in income. In the Life-Cycle/Permanent Income Model, consumers will only increase their spending if they believe that the increase in their income…
On a graph of a consumption function, what is the significance of the 45-degree line? O a. It connects all points where desired consumption equals actual disposable income. O b. It connects all points where desired consumption equals desired expenditure. O c. Desired consumption is zero at all points along the 45-degree line. O d. It connects all points where desired consumption equals desired saving. O e. It shows the slope of the average consumption function, against which we measure other consumpfion functions
All of the following are true when there is an unplanned decrease in inventories, except: O a. Actual investment is greater than planned investment O b. Real GDP will be rising O c. GDP is less than aggregate expenditures O d. Saving is less than planned investment
Which of the following best describes marginal propensity to consume (MPC) and average propensity to consume (APC)? O a. MPC is less than or equals 1, but APC can be either greater or less than 1 Both MPC and APC are always less than 1 MPC is less than 1, but APC is always equal to 1 O b. O c. O d. MPC and APC are always greater than or equal to 1 cross out cross out cross out cross out
Assume in a simple economy that thc level of saving is -500 when aggregate ourput equals zero and that the margina! propensity to save is 0.2. Derive the saving function and the consumption function, and draw a graph showing these func- tions. At what level of aggregate ouiput does the consumption curve cruss the 45° line? Explain your answer and show this un the graph.
If a $5,000 increase in income leads to additional savings of $1,250, the marginal propensity to consume is 1.33 0.25 4 O 0.75
In a Keynesian cross diagram, if the marginal propensity to save increases, O a) the aggregate expenditure function will shift to the right, but its slope will not change b) the aggregate expenditure function will shift to the left, but its slope will not change O c) the slope of the aggregate expenditure function will increase O d) the slope of the aggregate expenditure function will decrease
Which of the following would not increase consumption spending? O Decreased disposable income. Increased household wealth O A lower interest rate O Expectations of greater future income