Question

If Sally’s consumption function is linear and her marginal propensity to consume is 0.8, this means that Sally’s total spending cannot exceed 80% of her income. Sally will spend at least 80% of her total income. Sally will not save money regardless of her income. Sally will begin to save at the point where her marginal income is equal to 0.8.
(19)
If a household’s income increases from $50,000 to $60,000, and as a result, its consumption increases from $45,000 to $51,000, then what is the slope of its savings function? (Assume no taxes.) 0.6 0.15 0.85 0.4
(20)
The graph shows aggregate expenditures as a function of income. Given the information in the graph, which of the following statements are true? There is no autonomous spending. Business spending, government spending, and net exports are treated as autonomous spending. Aggregate expenditures do not vary with increasing income. Aggregate expenditures will fall to $0 when income falls to $0.
(21)
The two ways to view macroeconomic equilibrium in the Keynesian model are C = S and I = Y. C = Y and S = I. C = I and S = Y. C = T and G = S.
(22)
According to the table, at what level of income is the economy in equilibrium? 100 150 200 250

Answer 1

(18)

If Sally’s consumption function is linear and her marginal propensity to consume is 0.8, this means that Sally will spend at least 80% of her total income.

MPC =0.80, it means Sally will consume 80% of his increased income for sure. He will have autonomous consumption at zero level of income. So, the total consumption can be more than that.

Answer: Option (B)

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(19)

MPS is the slope of consumption function.

Income increases from $50,000 to $60,000.

Consumption increases from $45,000 to $51,000.

=> MPC = (Change in Consumption / Change in income)

=> MPC = ($51,000 - $45,000) / ($60,000 - $50,000)

=> MPC = ($6000 / $10,000)

=> MPC = 0.6

MPS + MPC = 1

=> MPS = 1 - MPC

=> MPS = 1 - 0.6

=> MPS = 0.4

Answer: Option (D)

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(20)

The graph shows aggregate expenditures as a function of income. Business spending, government spending, and net exports are treated as autonomous spending.

Answer: Option (B)

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(21) The two ways to view macroeconomic equilibrium in the Keynesian model are C = Y and S = I.

Answer: Option (B)

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Note: Table in missing for the 22 question