Question

9) An increase in wealth will

a.         shift the consumption function upward  

b.         make the consumption function steeper

c.         cause a movement upward along the consumption function        

d.         cause a movement downward along the consumption function   

e.         make the consumption function flatter

10) A decrease in the price level will

a.         shift the consumption function upward  

b.         make the consumption function steeper

c.         result in a movement upward along the consumption function    

d.         result in a movement downward along the consumption function

e.         have no effect on the consumption function

11) Which of the following would not increase the Gallego family's real net wealth?

a.         an increase in the value of their home   

b.         an increase in the value of Mrs. Gallego's pension fund  

c.         an increase in the amount that the Gallegos have saved in the bank         

d.         a rise in the price level

e.         a decrease in the size of the mortgage payments on the Gallego's home

12) When economists say investment is autonomous, they mean that

a.         investment is independent of the level of optimism about economic conditions   

b.         the forces motivating investment are not economic        

c.         investment is independent of the level of income

d.         investment is independent of the level of saving

e.         investment is independent of the rate of interest

Answer 1

9. Option A.

• When the wealth of people increases, they will be having enough money in their hands to consume various goods and services they desire.
• This will increase the demand for consumption and the amount of goods and services people consume Increases.
• Hence when the wealth increases the consumption function shifts upwards.

10. Option A.

• When the price level decreases, the purchasing power of a currency increases.
• This will increase the wealth of people and hence consumption increases.
• An increase in consumption will shift the consumption function upwards.

11. Option D.

• A rise in price level will decrease the purchasing power of a currency.
• This will lead to a fall in the wealth of people.
• Hence, Gallegos real net weath will not increase when the price level increases.

12. Option C.

• The term autonomous means that one variable is independent of another variable.
• When economists say investment is autonomous, they mean that the investment is independent of the level of income.