Question

Consumers change their purchases and move ALONG the same consumption function when:

Their income changes

Their tastes change

The price level changes

All of the above.

      12) If MPC is .75 then if consumer income rises by $10,000 we would predict that consumption will:

A. rise by $7500 while savings fall by $2500.

B. fall by $2500 while savings rise by $7500.

C. rise by $7500 while savings rise by $2500.

D. fall by $2500 while savings fall by $7500.

     13) Autonomous consumption is

A. that part of consumption that rises or falls with changes in disposable income.
B. the minimum that people will spend even if disposable income is zero.
C. the amount people will spend when the C line crosses the 45-degree line.
D. the amount people will spend when income is equal to consumption.

     14) A low rate of investment could be explained by a

A. low rate of saving and low interest rates.
B. low rate of saving and high interest rates.
C. high rate of saving and low interest rates.
D. high rate of saving and high interest rates.

     15) Mr. A makes $40,000 a year; Ms. B makes $20,000 a year. Mr. A pays $6,000 in taxes while Ms. B pays $4,000 in taxes. Which of the following is true?

A. Taxes are progressive because Mr. A pays a higher dollar amount in taxes than Ms. B

B. Taxes are neutral because Mr. A makes more money before and after taxes than Ms. B.

C. Taxes are regressive because Mr. A pays a lower tax rate than Ms. B.

D. Taxes are progressive because Ms. B pays a lower dollar amount in tax.

     16) The 45 degree line in the full AE model represents

A. all points where C = Y.

B. all points where AE = Y

C. all points where C + I = G + Xn

D. all points where C = I + G + Xn

       17) International trade:

A. Allows countries to specialize in the goods at which they are best at producing.

B. can increase the goods and services both trading partners have.

C. can be unbalanced where on partner exports more to the other than the other way around.

D. all of the above.

       18) If AD rises in the short run:

A. it pushes up the price level.

B. it decreases national output.

C. it increases full employment.

D. all of the above.

     19) We cut down trees and sell the timber for $8000. The timber is sawn up into lumber that sells for $18,000. The lumber is used to build furniture that sells to consumers for $30,000.

A. $30,000 goes into GDP.

B. $4000 goes into GDP.

C. $56,000 goes into GDP.

D. $22,000 goes into GDP.

     20) The long run annual growth rate of the U.S. economy tends to be about:

A. 1% or less.

B. 2%

C. 5%

D. 10% or more.

Answer 1

1- consumptio function is the function of income, it shows a positive relation between the consumption and the income, thus consumers move along the same Consumption curve when the income changes

so answer is A

2- marginal propensity of consume is the percentage of consumption increase for per unit increase in income, here as mpc = 0.75

thus a 10000 increase in income increases consumption by 7500 and rest is savings i.e 2500

so answer is c

3- autonomous consumption as seen in any consumption function is the consumption that is not deoendent on any income, it isfree from income increase or decrease,

thus answer is B

4- a low rate of investment is explained by low saving, as keynes has given the identity that savings = investment, also as interest rates are high the opportunity cost of investments are increased thus investment falls,

so answer is B