Question

Disposable Income Yd	Consumption C
$2,000	$2,040
2,100	2,120
2,200	2,200
2,300	2,280
2,400	2,360

1. Using the table provided calculate the following for each level of disposable income:

Change in disposable income

Change in consumption

Saving

Change in saving

MPC

MPS

The multiplier

Show your work if possible. I suggest that you build a table containing the information requested. This question is worth 7 points. All other questions are worth one point each.

2. The classical economists believed __________ determined savings, while Keynes said it was __________.

a. interest rates; income

b. income; investment

c. investment; interest rates

d. interest rates; investment

3. Which of the following statements is false?

a. MPC plus MPS equals 1.

b. MPC is additional saving divided by additional disposable income.

c. The MPS is the ratio of the change in saving to the change in disposable income.

d. If MPC equals 0.80, autonomous consumption equals $400, and disposable income equals $600, then consumption equals $880.

e. none of the above

4. If total production is greater than total expenditures, then business firms

a. have underproduced.

b. will step up production.

c. will lower production.

d. will experience decreases in inventory.

e. a and b

Answer 1