Question

1) As disposable income increases, consumption spending

a. increases by the same amount

b. decreases by the same amount

c. increases by less than the increase in disposable income

d. decreases by less than the increase in disposable income

e. does not change at all

2) Autonomous consumption expenditures are

a. identical to induced consumption

b. determined primarily by transfer payments

c. not influenced by disposable income

d. increasing at a decreasing rate

e. increasing at an increasing rate

3) Which is true of disposable income?

a. it excludes transfer payments

b. the portion of income is used solely for consumption

c. it is that part of aggregate income that is taken in taxes by government

d. all of disposable income contributes directly to aggregate expenditure

e. disposable income equals consumption expenditures plus saving

4) Which of the following is true of the relationship between disposable income and consumption?

a. Disposable income and consumption are both dependent variables.

b. Disposable income and consumption are both independent variables.

c. Disposable income is the dependent variable and consumption is the independent variable.

d. Consumption is the dependent variable and disposable income is the independent variable.

e. Neither is dependent nor independent since they are related by the equation DI = C + S.

Answer 1

Disposable is the income left after paying of taxes. It consists of savings and consumption.

1. As disposable income increases, consumption increases MPC times, which is Marginal propensity to consume and the value lies between 0 and 1.

Hence

C. The consumption increases by less than the increase in disposable income.

2. Autonomous consumption expenditure is the consumption level which persists even at 0 income level.

Hence the correct option is

C. Not influenced by disposable income.

3. E. Disposable income equals consumption expenditure and savings.

4. E. Neither is dependent nor independent since they are related by the equation DI =C+S.