Question

What does empirical evidence suggest about consumption?

A)It increases with any tax increase.

B)It increases with any increase in income.

C)It decreases with an increase in income.

D)It decreases with any increase in consumer confidence.

Which statement about short-run aggregate supply is the most accurate?

A-It reflects how much real GDP suppliers are willing and able to produce at different price levels.

B-It is set at the natural rate of unemployment.

C-It shifts only when the employment levels increase.

D-It is not affected in any manner by the price level.

How do economists define the marginal propensity to consume (MPC)?

as the additional consumption that results from one dollar increase in disposable income

as the fraction of total disposable income that households save

as the fraction of total disposable income that households spend on consumption

as the additional disposable income households earn in a given period

Answer 1

Ans 1. Correct option: (B) It increases with an increase in income. As the income of the consumer rises, he will consume more of goods and services.

Ans 2. Correct option: (A) It reflects how much real GDP suppliers are willing and able to.produce at different price levels. Because, it shows a relationship between real output produced by producers and general price level in the economy.

Ans 3. Correct option: (A) Additional consumption that results from one dollar increase in disposable income. It is the change in consumption level due to change in disposae income of the consumer.